Financial And Investment Analysis Of Commercial
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Financial And Investment Analysis Of Commercial Real Estate AUTHOR & SEMINAR PROGRAM DEVELOPER: JOSEPH L. PETROLE, CCIM, MAI Publisher: Dearborn Real Estate Education Seminar: GoldCoast Schools Of Real Estate “Investors purchase commercial real estate primarily for what it provides them, namely the expected financial returns desired, and not necessarily what the property’s physical and location attributes are. Market savvy investors want to know the expected returns; the risks associated with those expected returns and the price they are willing to pay for those expected returns, before they buy it”Joseph L. Petrole Book Review Financial and Investment Analysis for Commercial Real Estate provides a complete overview of how and why Financial and Investment Analysis is crucial to understanding commercial real estate, providing an in-depth discussion of “must know” topics including basic financial statements, terminology, measuring net operating income, preparing income & expense estimates, converting income estimates into value estimates, forecasting, how to use direct capitalization and yield capitalization, time value of money concepts, selecting discount rates, estimating Net Present Value and Internal Rate of Return, reasons and benefits of financing, leverage, loan-to-value and debt coverage ratios, preparing multi-year income & expense estimates, debt and amortizing loans, and measuring an investments performance as part of the decision making process. Readers will obtain a clear understanding of both commercial real estate and sophisticated investment techniques used by top institutional investors that they can put into practice immediately. The text is designed to be flexible enough for use for individual use, in a seminar series, for educational credit, and for general investment or licensing information. Level Of Material The text is easy to understand, and is written in a clear and concise language with educational material covering the introductory, intermediate and advanced levels. Each chapter includes comprehensive case studies to reinforce the learning experience. The text is packed with information that is valuable to anyone interested in commercial real estate. There are many useful step-by-step techniques that can be used immediately to achieve your real estate goals. The text is interactive, creating a mental learning environment that creates total immersion in the information. CHAPTER 1: ANALYZING INCOME AND EXPENSES FOR COMMERCIAL REAL ESTATE Chapter 1, Analyzing Income and Expenses for Commercial Real Estate provides the analytical tools for understanding and developing a supportable current income and expense estimate, as well as a future projecting future income and expenses associated with an income producing property. The individual components of income and expenses are presented and discussed in detail, providing the basis for a reconstructed operating statement. The reconstructed operating statement provides the core financial information, which forms the basis of either a one-year forecast or a multiple year forecast. The reconstructed operating statement is required for both direct and yield capitalization. © PetroGroup Realty Advisors, Inc. Phone: 305-447-4993 Fax: 305-447-4994 web: www.petrogroup.net 1 Financial And Investment Analysis Of Commercial Real Estate AUTHOR & SEMINAR PROGRAM DEVELOPER: JOSEPH L. PETROLE, CCIM, MAI In depth presentations of topics include: What Real Estate Investors Expect Basic Financial Statements Income Estimates and Terminology One Year Analysis Of Income & Expenses Preparing A Profit and Loss Statement The Importance Of Benchmarking The Balance Sheet The Profit and Loss Statement Selecting Units Of Measure Return On Capital, Return Of Capital Potential, Effective and Net Operating Income Fixed, Variable and Reserve Expenses CHAPTER 2: VALUING COMMERCIAL REAL ESTATE VIA DIRECT CAPITALIZATION Chapter 2, Valuing Commercial Real Estate Via Direct Capitalization, provides a comprehensive overview of the direct capitalization method of valuing income-producing property. “Direct Cap” is a method used to convert an estimate of a single years’ income expectancy into an indication of value in one “direct” step, usually by dividing the income estimate by an appropriate income rate or multiplying by an appropriate factor. The reconstructed operating statement provides the core financial information, which forms the basis of both a current year estimate or the following years’ forecast of expected income and value. In depth presentations of topics include: What Is Capitalization? Direct Capitalization Types Of Capitalization Rates Shortcomings Of Direct Capitalization The “IRV” Formula Risk, Return And Direct Capitalization Deriving Cap Rates from Property Sales Deriving Cap Rates From Other Sources Direct Capitalization Of Current Year Income Direct Capitalization Of Forecasted Income Tests Of Reasonableness Economic, Market And Property Related Risks CHAPTER 3: VALUING COMMERCIAL REAL ESTATE VIA YIELD CAPITALIZATION Chapter 3, Valuing Commercial Real Estate Via Yield Capitalization, provides a comprehensive overview of yield capitalization. Yield capitalization is a method used to convert expected future financial benefits into a present value by discounting each future benefit at an appropriate yield rate or developing an overall rate that reflects the investment’s income pattern, value change, and yield rate. The reconstructed operating statement provides the core financial information, which forms the basis of both a current year estimate and the investments projected performance. In depth presentations of topics include: Yield Capitalization – An Overview Why Use Yield Capitalization Analysis, Projections And Forecasts Yield Rates and Rates Of Return Physical - Financial Architecture Of Real Estate Investments In Zero Coupon Bonds Cash Flow Diagrams Compound Interest And Time Value Of Money Annuities Relevance Of Time Value Of Money Yield Capitalization Financial Models Reconciling Direct Cap With Yield Cap Values © PetroGroup Realty Advisors, Inc. Phone: 305-447-4993 Fax: 305-447-4994 web: www.petrogroup.net 2 Financial And Investment Analysis Of Commercial Real Estate AUTHOR & SEMINAR PROGRAM DEVELOPER: JOSEPH L. PETROLE, CCIM, MAI CHAPTER 4: FINANCING COMMERCIAL REAL ESTATE AND MEASURING INVESTMENT PERFORMANCE Chapter 4, Financing Commercial Real Estate And Measuring Investment Performance, addresses financing real estate, with the property pledged as collateral for the loan. The financing component affects the property value, as well as the equity component. Financing is an “acquisition vehicle” that has much broader implications than simply being able to acquire the property. Financing is also used to “lever up” returns over and above those obtainable utilizing only cash, to build an asset base and to “cash out” without triggering capital gains issues. Savvy investors “…negotiate a property’s’ purchase price for cash, but measure its’ value and return based on leverage…” There are both benefits and burdens associated with investing in commercial real estate. When investing, what you don’t know can and will hinder your ability to achieve your investment objectives. The financial performance of a real estate investment is quantifiable and can be measured economically. All real estate investment decisions should be based on quantifiable information and that quantifiable information should be “benchmarked” against both industry standards and market norms. Investors should purchase property based on their unique investor sentiment and preferences. They should then measure investment performance against their expectations and objectives. Measuring an investments performance also implies that the investor has actually identified their expectations and objectives. In depth presentations of topics include: Why Real Estate Is Capital Intensive How Financing Increases Acquisition Capital How Financing Affects Investment Returns How Financing Is Repaid By Property Income Sources Of Financing Costs Of Financing Case Study: Un-leveraged Property Acquisition Case Study: Leveraged Property Acquisition Measuring An Investments’ Performance The Loan-to-Value Ratio The Debt Coverage Ratio Neutral, Negative And Positive Leverage Rates Of Return To Equity And Debt Mortgage Brokers, Bankers and Correspondents Brokerage, Origination and Servicing Fees Net Present Value Internal Rate Of Return Capital Stacks Addendum: Additional Resources Additional resources are located in the addendum. They include an answer key, a Web site directory, a complete glossary of terms and an index. Author, Program Developer, Seminar Instructor Joseph L. Petrole, CCIM, MAI is a seasoned real estate professional with over 25 years experience in the industry. He is principal of PetroGroup Realty Advisors, Inc. (www.petrogroup.net) and has provided Real Estate Investment Banking Services including sale, financing, underwriting, valuation, evaluation and consulting related services for commercial real estate with an aggregate value in excess of $1billion. © PetroGroup Realty Advisors, Inc. Phone: 305-447-4993 Fax: 305-447-4994 web: www.petrogroup.net 3 Financial And Investment Analysis Of Commercial Real Estate AUTHOR & SEMINAR PROGRAM DEVELOPER: JOSEPH L. PETROLE, CCIM, MAI Buy The Text Or Attend The Seminar Contact Gold Coast Schools: 1-800-732-9140 About Gold Coast Schools Of Real Estate (www.goldcoastschools.com) If you would like to purchase the book, Financial and Investment Analysis of Commercial Real Estate, register for the seminar on this material or view the entire seminar program, please contact Gold Coast Schools Of Real Estate via telephone or visit them on the web. Gold Coast is a group of related schools offering licensing education for a variety of Florida professions. Gold Coast has been offering courses to professionals for more than 30 years. Their staff is dedicated 110% toward your success. Each instructor is selected based upon not only their knowledge in the respective fields such as real estate, insurance, or construction, but also on their presentation skills. Their instructors are the best in the business. Interested In Attending The Seminar? The Financial and Investment Analysis of Commercial Real Estate seminar provides a broad overview of the essential “must know” areas of the commercial real estate industry. The seminar is an in-depth information resource, which explores career options and provides students with opportunities for increasing their income, continuing their professional development within commercial real estate, knowledge sharing and networking, within a relaxed professional environment. This one-day seminar starts at 9:00am and ends at 5:30pm. Who Should Attend The Seminar? There is no pre-licensing requirement. Join new and experienced real estate sales and broker licensees, commercial banking credit analysts, commercial banking lenders and underwriters, mortgage brokers, mortgage bankers, new and experienced investors, investment bankers, portfolio mangers, leasing agents, corporate real estate managers, real estate acquisition and disposition managers, real estate consultants, real estate appraisers, attorneys and other real estate professionals who have attended and who are interested in increasing their knowledge and income. Technical Requirements Of The Seminar Bringing a financial calculator, such as an HP-12C, is highly recommended. Seminar Professional Development Certificate Program 17 CE Credit Hours Toward A CREP Designation Earn a CREP Designation from the Commercial Real Estate Professional Society by taking all 3 Commercial Seminars. The Real Estate Professional Society (http://www.realestateprofessionalssociety.com) awards the CREP designation to individuals, including real estate agents, who have gained educational knowledge about the different aspects of commercial real estate. The purpose of the educational courses is to provide educational information about the different aspects of the commercial real estate. A total of at least 42.50 hours of course credits are required in which the following is discussed in detail: commercial sales transactions, commercial sales documentation, investment evaluation methods, liability, types of financing available for commercial properties, essential elements of the contract, © PetroGroup Realty Advisors, Inc. Phone: 305-447-4993 Fax: 305-447-4994 web: www.petrogroup.net 4 Financial And Investment Analysis Of Commercial Real Estate AUTHOR & SEMINAR PROGRAM DEVELOPER: JOSEPH L. PETROLE, CCIM, MAI closing procedures, and documentation in a commercial sale along with the benefits and requirements of a tax deferred exchange, site selection, land development, commercial leases, investment evaluation methods including property comparison, appraisal, capitalization rates, and the time value of money. The program is ideal for residential real estate agents who want to know more about the commercial real estate field or might even be considering a career as a commercial real estate agent, as the courses will provide a great and valuable insight into the “other side” of real estate. Seminar Continuing Education Credit 11 CE Credit Hours Toward A Florida Real Estate Broker or Sales License. About The Publisher: Dearborn Real Estate Education (www.dearbornre.com) Dearborn Real Estate Education is the nation’s leading provider of educational materials for real estate prelicensing, exam prep, continuing education, professional development, and two- and fouryear colleges. Dearborn is a wholly owned subsidiary of Kaplan, Inc (www.kaplan.com). Kaplan is a leading provider of education and training solutions to companies and individuals in the financial services, insurance, banking, real estate, legal, information technology, and call center industries. Kaplan, Inc. is a wholly owned subsidiary of the Washington Post (www.washingtonpost.com). © PetroGroup Realty Advisors, Inc. Phone: 305-447-4993 Fax: 305-447-4994 web: www.petrogroup.net 5
