foundations of real estate management tm boma international ® module 1: real estate administration...

Foundations of Real Estate Management

TM

BOMA International ®

Module 1: Real Estate Administration

Valuation and Asset Management

Foundations of Real Estate ManagementModule 1: Real Estate Administration

TM

2

Objectives Describe how value is created on an income-

producing property, and identify at least five ways a property manager can add value to a real estate investment

Describe the concept of equity as it relates to owning a piece of investment real estate, and explain how an owner can use leverage to increase the value of his real estate holdings

Describe what happens to the value of a real estate investment when the capitalization rate is increased or decreased


TM

3

Income Producing Properties

Goal: MAKE MONEY!


TM

4

Non-Income Producing Properties

Goal: NON-MONETARY

Corporate Government Schools/Religious Buildings/Non-Profits


TM

5

Cash Flow Equation

Net Operating Income (NOI)

- Operating Expenses

Income


TM

6

Cash Flow Equation

Net Cash Flow (NCF)

- Non-Operating Expenses

- Debt Service

- Capital Expenses

Net Operating Income (NOI)

- Operating Expenses

Income


TM

7

Increasing Cash Flow

Income

Expenses


TM

8

Putting It Into Practice

What can be done to increase income at a property?


TM

9


What can be done to decrease expenses at a property?


TM

10

Be Careful…

It is OK to cut expenses “to the bone” if that is your owner’s

strategy

Just don’t cut the bone!


TM

11

Deferred Maintenance

Deferred maintenance is not avoided maintenance…

The work still needs to be

done at some point in the

future


TM

12

Deferred Maintenance

Remember: With almost anything in life (and in real

estate), it is far cheaper to maintain something instead of replacing it

prematurely


TM

13

Value

Appraisal Estimate of market value of a real

estate asset at a given time

Goal of the real estate manager:1. Improve the asset value2. Preserve the asset value3. Reduce the loss of asset value


TM

14

Appreciation

0

5

10

15

20

25

30

35

40

45

50

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

Time from Purchase to Sale

MM $

Usually, real estate values increase over time


TM

15

Adding Value

to

Purchase Sale


TM

16

Value

To maximize asset value, consider:

What can I do with the asset?

How can I increase income/decrease expenses?

Can I redevelop the asset?

Can I overcome functional obsolescence?

Do I know something others do not?


TM

17

Asset Management Cycle


TM

18

Asset Management Strategies

Add value Hold

Long-, intermediate-, short-term Sell and “reload” Sell and not “reload” Maximize cash flow Provide for an annual return


TM

19

Risk/Return

Core: Low risk/return

Core+: Low to moderate risk/return

Value add: Moderate/aggressive

risk/return

Opportunistic: Aggressive risk/return


TM

20


Work with your instructor to complete the exercise in your

textbook


TM

21

Care and Feeding of Asset Manager


TM

22

Value

Market Value (based upon appraisal)

v.

Market Price(based upon arms-length sale)


TM

23

Determining Market Value

Sales Comparable Approach Recent sales of similar buildings

Cost Approach Replacement cost

Income Approach How much is the cash flow worth?


TM

24

Value Depends Upon the Cap Rate

Effective Gross Income $600,000

Less: Operating Expenses ($270,000)

Net Operating Income (NOI) $330,000


TM

25

Cap Rate v. Property Value


TM

26

Equity and Leverage

Mortgage (Leverage) Principal Interest

Interest only loans

Loan-to-Value (LTV) ratio Equity Debt

foundations of real estate management tm boma international ® module 1: real estate administration...

Documents

real estate asset

real estate administration

real estate investment

real estate manager

real estate values

real estate holdings

asset management slide

time slide