590 lecture 1
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590 Lecture 1TRANSCRIPT
MBA 590 Real Estate Analysis
! College of BusinessAlfaisal
UNIVERSITY
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Syllabus !
Class Exams
Presentation Rules
!
!
! College of BusinessAlfaisal
UNIVERSITY
Textbook !
Real Estate Principles: A Value
Approach !
David C. Ling Wayne R. Archer
! College of BusinessAlfaisal
UNIVERSITY
What is real estate?
What is real estate?
Largest Component of
Wealth
Half of Wealth is
Real Estate
Make better decisions
All decisions depend on an
estimate of value
Price Cost Value
1- Property
1- Property
Anything you can own
Property
Property
Property
Tangible - Touch
Property
Tangible - Touch
Property
Tangible - Touch
Intangible - Cannot Touch
Property
Tangible - Touch
Intangible - Cannot Touch
Land and its permanent
improvements
Horizontal !
Vertical
Personal Property
2 - Bundle of Rights
2 - Bundle of Rights
What I can do with real property
Bundle of Rights
Bundle of Rights
Bundle of Rights
Bundle of Rights
Bundle of Rights
Bundle of Rights
Bundle of Rights
More rights = more value
Bundle of Rights
More rights = more value
Physical Location
Legal
Is real property tangible or intangible?
Is real property tangible or intangible?
Both
3 - Industry
3 - Industrydeveloping managing
buying/selling evaluating
brokerage management
appraisal consulting site selection - development
construction financing
investment government
entrepreneurs analysts
managers regulators
Real Estate in U.S. 23%
Financing Older to Younger
Generations
Users Financing
Generations
User Market Capital Market
Property Market
User Market
User Marketowner occupants
User Marketowner occupantstenants or renters
U.S. Ownership
U.S. Ownershiphomes - 67%
U.S. Ownershiphomes - 67%
commercial - 33%
Saudi Ownership
Saudi Ownershiphomes - 27%
Residential
Residentialsingle-family
Residentialsingle-family
multiple-family
Commercial
Commercialoffices
Commercialoffices
industrial
Commercialoffices
industrialretail
Commercialoffices
industrialretailother
Capital Market
Capital Marketprovide money to
the real estate market
Capital Market
Capital Marketequity
Capital Marketequitydebt
Equity
Equityincome
Equityincome
rent
Equityincome
rentresale
Return
Returnon your money
Returnon your moneyof your money
Debt
Debtlenders
Debtlenders
return of principal and interest
Equity and Debt
Equity and Debtprivate
Equity and Debtprivatepublic
Private Public
Equity Owners
Individuals Partnerships Corporations
Private equity funds Hedge funds
Real Estate Investment Trusts (REITS)
Real Estate Companies
Debt Lenders
Banks, insurance companies, finance companies, private
lenders
Commercial mortgage backed securities (CMBS)
Property Market
Property Marketinvestors
Property Marketinvestors
values
Property Marketinvestors
valuesrates
Property Marketinvestors
valuesrates
feasibility
Capitalization Rate
Capitalization Rate
fundamental
Capitalization Rate
fundamentalmeasure
Capitalization Rate
fundamentalmeasure
IRV
IRVI = Income
IRVI = IncomeR = Rate
IRVI = IncomeR = RateV = Value
IRV
IRVI = R x V
IRVI = R x VR = I ÷ V
IRVI = R x VR = I ÷ VV = I ÷ R
IRV
IRVIf you know two you can solve for
third
IRV
IRVI = 50,000
IRVI = 50,000
V = 750,000
IRVI = 50,000
V = 750,000R = ?
IRV
IRVI = R x V
IRVI = R x VR = I ÷ V
IRVI = R x VR = I ÷ VV = I ÷ R
IRVI = R x VR = I ÷ VV = I ÷ R
R = I ÷ V
R = I ÷ VR = 50,000 ÷ 750,000
R = I ÷ VR = 50,000 ÷ 750,000R = .0667 or 6.67%
I = 500,000
I = 500,000R = .08 or 8%
I = 500,000R = .08 or 8%
V = ?
I = 500,000R = .08 or 8%
V = ?V = I ÷ R
I = 500,000R = .08 or 8%
V = ?V = I ÷ R
V = 500,000 ÷ .08
I = 500,000R = .08 or 8%
V = ?V = I ÷ R
V = 500,000 ÷ .08V = 6,250,000
I = 500,000R = .08 or 8%
V = ?V = I ÷ R
V = 500,000 ÷ .08V = 6,250,000
I = 500,000R = .08 or 8%
V = ?V = I ÷ R
V = 500,000 ÷ .08V = 6,250,000
V = 5,000,000
V = 5,000,000R = .07 or 7%
V = 5,000,000R = .07 or 7%
I = ?
V = 5,000,000R = .07 or 7%
I = ?I = V x R
V = 5,000,000R = .07 or 7%
I = ?I = V x R
I = 5,000,000 x .07
V = 5,000,000R = .07 or 7%
I = ?I = V x R
I = 5,000,000 x .07I = 350,000
V = 5,000,000R = .07 or 7%
I = ?I = V x R
I = 5,000,000 x .07I = 350,000
V = 5,000,000R = .07 or 7%
I = ?I = V x R
I = 5,000,000 x .07I = 350,000
Government
Governmentzoning and land use
Governmentzoning and land use
fees
Governmentzoning and land use
feesbuilding codes
Governmentzoning and land use
feesbuilding codesproperty taxes
Government
Governmentlicensing
Governmentlicensingfinancing
Governmentlicensingfinancingsubsidy
Governmentlicensingfinancingsubsidy
infrastructure
User Market
User Marketsupply and demand
determine rental rates which
determines property cash
flow
User Marketsupply and demand
determine rental rates which
determines property cash
flow
I
User Market
Capital Market
supply and demand
determine rental rates which
determines property cash
flow
I
User Market
Capital Market
supply and demand
determine rental rates which
determines property cash
flow
savers and borrowers determine
required rates of return
I
User Market
Capital Market
supply and demand
determine rental rates which
determines property cash
flow
savers and borrowers determine
required rates of return
I R
User Market
Capital Market
Property Market
supply and demand
determine rental rates which
determines property cash
flow
savers and borrowers determine
required rates of return
I R
User Market
Capital Market
Property Market
supply and demand
determine rental rates which
determines property cash
flow
savers and borrowers determine
required rates of return
NOI and required rates
of return determine
values !
I R
User Market
Capital Market
Property Market
supply and demand
determine rental rates which
determines property cash
flow
savers and borrowers determine
required rates of return
NOI and required rates
of return determine
values !
I RV
What affects value?
What affects value?
all kinds of factors
risks and rates
risks and rateslocation risk
risks and rateslocation risk
property type risk
risks and rateslocation risk
property type riskmanagement risk
risks and rateslocation risk
property type riskmanagement risk
other risk
new construction
new constructionif cost is less than
value
supply and demand
supply and demand
supply is long
supply and demand
supply is longdemand can be
short
Volatile
Volatile
good can turn bad and bad can turn
good
Real Estate Markets differ from all other
markets
heterogeneous
heterogeneous
no two properties are exactly the
same
LVS
LVS
location-value
LVS
location-valuesignature
Location
Location
internal
Location
internalexternal
immobility
immobility
cannot change locations
Markets
Marketsilliquid
Marketsilliquid
localized
Marketsilliquid
localizedsegmented
Marketsilliquid
localizedsegmented
private negotiation
Localized
Localized
the closer the more effect
Segmented
Segmented
different types
Segmented
different typesdifferent prices
Negotiations and Costs
Negotiations and Costs
complexity
Negotiations and Costs
complexityprofessionals
Negotiations and Costs
complexityprofessionals
time