Euromoney Audit Training

Course overview

'Real Estate Finance' - a 4-day practical course on the financial feasibility of real estate investment and development deals. This course teaches methods of analysing and insight into the increasingly complex and sophisticated process of real estate investment, development and finance. To take full advantage of profitable property finance opportunities, it is essential to understand the fundamental investment and financing techniques.

The aim of this course is to give you an insight and grasp of the key drivers of real estate finance and how to select, assess and model appropriate financial alternatives in a risk / return context.

Summary of course content

• Assessing the deal structuring options
• Analysing the risk and returns of investing in property
• Using both debt and equity financing structures and techniques
• Evaluating real estate asset management techniques
• Understanding the component parts of a real estate cash flow model

Methodology

As with all Euromoney Training courses, this course makes use of case-studies and exercises to ensure that you leave the course, ready to apply your new knowledge.

Computer-based exercises

All delegates should bring their laptops to facilitate in-class studies.

Who should attend this training course?

• Commercial bankers
• Finance company professionals
• Investment bankers
• Corporate real estate managers
• Real estate investment managers
• Insurer portfolio management professionals
• Pension fund portfolio management professionals
• Real estate developers
• Project engineers
• Lawyers
• Accountants

Supporting publications

Day 1

Introduction

• Structure of the course
• Delegates' objectives

Valuation and appraisal fundamentals

• What should financiers and investors ask for? What should they look for?

Worked examples

• Investment valuation methods
• Lease structures and value
• Types of income
• Asset management: adding and enhancing value
• Understanding yields and cap rates
• Types of yield
• What are the key drivers?

Spreadsheet analysis: investment acquisition

• Setting up, analysing and comparing different valuation approaches
• Setting out and adjusting an investment valuation and appraisal
• Using formula and functions for flexibility. Best practice tips

Structuring the cash flow

• How to structure, avoiding common mistakes. Investor approach vs. lender concerns.

Worked examples and practical issues

• Developing the business plan
• A discounted cash flow primer: typical patterns of cash flows
• Key variables and outputs
• Projecting rents, operating expenditure and yields
• Use of capital expenditure
• A line by line assessment down to the net operating income
• IRR and NPV
• Ratio analysis and diagnostics
• Solving the maximum price to pay
• Property cycles: opportunities and threats. What to look for in different stages in the cycle?

Spreadsheet analysis: cash flow I - example of an investment acquisition

• Setting up a proforma investment cash flow appraisal: shaping up the basic deal
• IRR and NPV: How calculated? What do they really mean?
• Partitioning the IRR: income and exit ratios
• What is an appropriate discount rate? What about the target rate of return?
• What else will show whether it is a good deal?
• Considering the possible merits and limitations
• Testing 'what if' and adding sensitivity analysis

Day 2

Structuring the finance I: investment acquisition

• Key financial covenants, sizing the debt, understanding risks, pricing and risk mitigation.

Worked examples and case study

• Gearing up an investment acquisition (use of leverage)
• Typical financial covenants and points for negotiation
• Interest only, partial and full amortisation
• Sizing the debt
• After debt cash flows
• Identifying and quantifying the risks in the loan
• Structuring for protection
• Profitability and financial risk
• From sensitivity to scenario analysis

Case study: investment finance

Participants will discuss terms for a loan for an investment opportunity. Examples of term sheets will be used to focus the discussion on suitable terms. On completion, a spreadsheet model will be used to illustrate the cash flow implications and key points.

Spreadsheet analysis: cash flow II - worked example of adding senior debt

• Developing the model and adding the finance
• Create and adjust a geared cash flow model
• Analysing the impact of different levels of debt and equity

Mezzanine and participating loans

• Stretched debt to quasi equity
• Structuring a package
• Stand alone or blended?
• Inter-creditor agreements
• Look back IRRs and warrants
• Understanding the risk and reward structures for the parties to the deal

Spreadsheet analysis: cash flow III - worked example of adding mezzanine finance

• Templates will be used to demonstrate a mezzanine cash flow model
• Analysing different structures, such as Look Back and Side by Side participation in a risk return context, by adjusting key inputs to the model

Day 3

Development appraisals

• From residuals to cash flows
• Line by line items down to profit
• Ratio analysis
• How is profit being generated?

Spreadsheet analysis: development project

• A spreadsheet model will be used to demonstrate the set up of a development proposal
• Ratio analysis and risk analysis techniques will be used to show the implications of changing market conditions

Structuring the finance II: development

• Pre-let or speculative?
• A financial point of view
• Construction loan mechanics
• Main underwriting criteria
• Project monitoring issues
• Exit strategies
• Forward sale and full forward commitment
• Matching the loan to the cash flows and the risks

Case study: financing a development

Participants will work in small groups to analyse a case study that considers the risk and return profile of a development and consider appropriate methods of finance.

Spreadsheet analysis: development finance

• Spreadsheet models will be used to demonstrate the impact of finance on pre-let and speculative schemes
• Structuring debt and 3rd party equity will be considered and analysed
• Calculating bottom line performance and assessing the risk

Day 4

Equity finance I: Joint Ventures (JVs)

• Source and structuring equity. Features and ensuring alignment of interests between the parties. Relative risks and returns

Worked examples

• Landowner / developer JVs
• JVs and capital partners
• Ground leases, land leasebacks and real options
• Different structures for different players
• Risk and return
• Priority of distributions

Equity finance II: private equity

• Structures and styles
• REITs vs. private equity
• Prefs, promotes and waterfalls
• Allocating risk and return
• Showing the exit and risk

Spreadsheet analysis: joint ventures and private equity vehicles

• Spreadsheet models will be used to demonstrate the set up of joint ventures, ground leases and private equity models
• Structuring prefs, promotes, splits and waterfalls
• Delegates will test possible outcomes on the templates provided

Structured sale and lease backs

• Enabling corporate occupiers to release capital to retire expensive debt or repay shareholders
• Market trends and activity
• PropCo, OpCo and portfolio deals
• Enabling flexibility and cash flow profiles
• Concentration risk and residual value risk

Case studies

Use of stapled finance

• Bill Rodney

  Bill Rodney

  Senior Lecturer, Cass Business School (City University London).
  
  Bill is a chartered surveyor whose career has spanned both private and public sector work. He has worked on large-scale commercial development schemes and major urban regeneration projects. He has also consulted on funding and development strategies for commercial property projects in Europe, Africa, Asia and Australia as well as having extensive teaching experience in the UK, Hong Kong and Malaysia. He has advised on Private Finance Initiatives (PFI) to Central and Local Government Authorities and undertaken research and consultancy projects in development, cash flow analysis and corporate real estate on a range of topics related to business strategy and trends impacting the real estate industry.

  He has over 25 years of teaching and training experience, mainly in postgraduate courses such as specialist Real Estate Investment & Finance Masters and MBA programmes and senior manager workshops. During this time he has presented training throughout Europe, Africa and the Middle East for a range of investment managers, corporate advisory teams, legal firms and public sector institutions. His professional training includes being the founding Technical Director and contributor to the Investment Property Forum's Advanced Education Programme, and faculty member on Corporate Real Estate (CRE) Designation Programmes. In addition he served as the RICS delegate to FIG Commission 9 involving speaking at international workshops and conferences. Bill gained his MSc in Real Estate Investment & Finance at City University just before joining the facility and becoming head of department.

Interested in holding this course in-house? Please fill out your details and a member of our team will be in touch with more information.