Your regular DCF models are useless in real estate.

Model the development of a residential condominium building, from pre-construction all the way through either the sale of the property or hold and lease after construction. Start with a property profile and a list of all units before delving into Sources and Uses of Funds for the transaction. Sources span a variety of debt/equity combinations, each with their respective costs. Uses are also quite diverse, ranging from hard costs associated with the actual construction to soft costs.

Model out most common types of debt and debt structures available to finance the project. Learn how to model all the revenue and expense drivers in order to calculate expected cash flows. Then compute debt and leverage constraints as well as valuation based on cap rates, which ultimately feed into the financial returns section.

Learning Objectives

• Construct Sources and Uses of Funds, identify and project revenue and expenses based on drivers for condos
• Build a dynamic and integrated model that forecasts cash flows, NOI, cap rates and other relevant metrics
• Compute permitted debt levels and leverage constraints, including debt amortization and equity requirements
• Calculate financial returns (IRR, multiple of capital, breakeven) and sensitivity analysis to maximize equity returns

Sources & Uses of Funds and Construction / Pre-Construction Roll-up

• Understand the importance of construction and pre-construction inputs, as they control the CF and P&L of the model
• Project Sources of Funds: developer vs. investor equity, mezzanine vs. senior debt and associated financing costs
• Delineate hard costs (raw materials, excavation, demolition, construction, doors) and relevant depreciation treatment
• Account for soft costs (legal, architects, designers, engineers, insurance, taxes, marketing) and expense treatment
• Compile a rent roll summarizing the various units, complete with occupancy, market rent, and square footage
• Analyze other types of costs (FF&E, tenant improvements) that are incurred as move-in dates approach

Revenue and Expense Drivers

• Split units by pricing (Market, Pre-Sales, Affordable) and maximize floor area ratio (FAR) for each unit based on lot size
• Capture key revenue drivers such as: pre-sale / closing rates (sales path) and price per square foot (or per unit)
• Incorporate number of employee units, parking income, concessions, and other ancillary fees revenue
• Net out revenue deductions associated with exiting via property sale (broker fees, marketing fees, etc.)
• For continuous leasing, analyze individual operating expenses (maintenance, security, common area, payroll, management fees, deposits/closing, administrative, insurance, utilities, taxes, etc.)
• Factor in the absence of tenants sharing any of the costs of property taxes, insurance, and maintenance
• Account for security deposits, closing costs, and lease cancelling charges, affecting monthly timing on tenant income
• Determine whether the condominium is subject to specific electricity charges in certain markets (may be based on a stated amount in the lease, annual surveys of usage, submetering of usage, or direct metering)

CF Model Integration with Leverage and Equity Requirements

• Construct P&L and cash flow model for cash-on-cash analyses and other metrics such as NOI, FFO as appropriate
• Incorporate CapEx and maintenance CapEx assumptions that properly flow through the model
• Combine metrics such as Loan-To-Value (LTV) and Loan-to-Cost (LTC) ratios to start evaluating credit risk
• Construct debt amortization schedules and distinguish between levered and unlevered returns
• Proper treatment of capitalized interest expense during construction period vs. expensing interest post-construction
• Calculate relevant credit ratio and leverage statistics (DSCR, etc) to determine ideal mix of debt and equity capital
• Refine equity injection required with debt sweep logic to maintain a minimum level of working capital
• Calculate key financial return metrics including levered and unlevered cash-on-cash IRR, multiple of capital, etc.
• Layer on sensitivity analyses to simulate various scenarios reflecting fluctuations in key drivers of profitability
• Model out capital structure nuances: contributed capital tiers, desired leverage, JV partner shares, and IRR thresholds
• Understand sensitivity of accruals and fund-level IRR & equity multiples driven by changes in levered cash flows

Model the development of an office complex, from pre-construction all the way through either the sale of the property or leasing for several years after construction. Start with a property profile and a list of all units before delving into sources and uses of funds. Sources span a variety of debt/equity combinations, each with their respective costs. Uses are also quite diverse, ranging from hard costs associated with the actual construction to soft costs such as hiring designers and engineers.

Figure out the various types of debt and debt structures available to finance the project. Learn how to model all the revenue and expense drivers in order to calculate expected cash flows. Then compute debt and leverage constraints as well as valuation based on cap rates, which ultimately feed into the financial returns section.

Learning Objectives

• Construct Sources and Uses of Funds, identify and project revenue and expenses based on drivers for office buildings
• Build a dynamic and integrated model that forecasts cash flows, NOI, cap rates and other relevant metrics
• Compute permitted debt levels and leverage constraints, including debt amortization and equity requirements
• Calculate financial returns (IRR, multiple of capital, breakeven) and sensitivity analysis to maximize equity returns

Sources & Uses of Funds and Construction / Pre-Construction Roll-up

• Understand the importance of construction and pre-construction inputs, as they control the CF and P&L of the model
• Project Sources of Funds: developer vs. investor equity, mezzanine vs. senior debt and associated financing costs
• Delineate hard costs (raw materials, excavation, demolition, construction, doors) and relevant depreciation treatment
• Account for soft costs (legal, architects, designers, engineers, insurance, taxes, marketing) and expense treatment
• Compile a rent roll summarizing the various units, complete with occupancy, market rent, and square footage
• Analyze other types of costs (FF&E, tenant improvements) that are incurred as move-in dates approach
• Subtract out costs associated with exiting via property sale (broker fees, marketing fees)

Revenue and Expense Drivers

• Maximize floor area ratio (FAR) for each unit based on lot size
• Capture all typical revenue drivers such as vacancy allowance, rent per square foot, rentable area, number of employee units, parking income, concessions, and other fees (application, termination, redecoration, late)
• For continuous leasing, analyze individual operating expenses (janitorial, maintenance, landscaping, security, office expense, payroll, management fees, deposits/closing, administrative, insurance, utilities, taxes)
• Factor in significant capital investment from owner upon new/changing tenants, as office lessors have a TI obligation
• Forecast long-term space modification trends such as the growing popularity of open co-working spaces, etc.
• Allow for more flexible lease terms for extremely long-term anchor tenants

CF Model Integration with Leverage and Equity Requirements

• Distinguish between different types of leases such as Triple Net Leases inclusive of OpEx and property taxes
• Construct P&L and cash flow model for cash-on-cash analyses and other metrics such as NOI, FFO as appropriate
• Incorporate CapEx and maintenance CapEx assumptions that properly flow through the model
• Combine metrics such as Loan-To-Value (LTV) and Loan-to-Cost (LTC) ratios to start evaluating credit risk
• Construct debt amortization schedules and distinguish between levered and unlevered returns
• Proper treatment of capitalized interest expense during construction period vs. expensing interest post-construction
• Calculate relevant credit ratio and leverage statistics (DSCR, etc.) to determine ideal mix of debt and equity capital
• Refine equity injection required with debt sweep logic to maintain a minimum level of working capital
• Calculate key financial return metrics including levered and unlevered cash-on-cash IRR, multiple of capital, etc.
• Layer on sensitivity analyses to simulate various scenarios reflecting fluctuations in key drivers of profitability
• Model out capital structure nuances: contributed capital tiers, desired leverage, JV partner shares, and IRR thresholds
• Understand sensitivity of accruals and fund-level IRR & equity multiples driven by changes in levered cash flows

Model the development of a retail shopping mall, from pre-construction all the way through either the sale of the property or leasing for several years after construction. Start with a property profile and a list of all units before delving into sources and uses of funds. Sources span a variety of debt/equity combinations, each with their respective costs. Uses are also quite diverse, ranging from hard costs associated with the actual construction to soft costs such as hiring designers and engineers.

Figure out the various types of debt and debt structures available to finance the project. Learn how to model all the revenue and expense drivers in order to calculate expected cash flows. Then compute debt and leverage constraints as well as valuation based on cap rates, which ultimately feed into the financial returns section.

Learning Objectives

• Construct Sources and Uses of Funds, identify and project revenue and expenses based on drivers for shopping malls
• Build a dynamic and integrated model that forecasts cash flows, NOI, cap rates and other relevant metrics
• Compute permitted debt levels and leverage constraints, including debt amortization and equity requirements
• Calculate financial returns (IRR, multiple of capital, breakeven) and sensitivity analysis to maximize equity returns

Sources & Uses of Funds and Construction / Pre-Construction Roll-up

• Understand the importance of construction and pre-construction inputs, as they control the CF and P&L of the model
• Project Sources of Funds: developer vs. investor equity, mezzanine vs. senior debt and associated financing costs
• Delineate hard costs (raw materials, excavation, demolition, construction, doors) and relevant depreciation treatment
• Account for soft costs (legal, architects, designers, engineers, insurance, taxes, marketing) and expense treatment
• Compile a rent roll summarizing the various units, complete with occupancy, market rent, and square footage
• Analyze other types of costs (FF&E, tenant improvements) that are incurred as move-in dates approach
• Subtract out costs associated with exiting via property sale (broker fees, marketing fees)

Revenue and Expense Drivers

• Split units by type (Anchor, In-line Shop, Food Court) and maximize floor area ratio (FAR) for each unit based on area
• Capture all typical revenue drivers such as vacancy allowance, sales per square foot, rent per square foot, rentable area, concessions, and other recoveries (CAM recoveries, RET recoveries, marketing income, utility charges)
• For continuous leasing, analyze individual operating expenses (security, janitorial/food court, landscaping, repairs/maintenance, administrative, insurance, utilities, taxes)
• Strongly sensitize single-tenant lease roll-up to anchor tenants (no penalty for in-line tenants if an anchor leaves)
• Center rent structure around anchor tenants, who pay significantly less rent in order to simply drive foot traffic

CF Model Integration with Leverage and Equity Requirements

• Analyze the range of metrics for each property subsector (e.g. Regional Mall, Community Shopping Center, Power Center, Neighborhood Shopping Center, Outlet, Specialty Retail)
• Construct P&L and cash flow model for cash-on-cash analyses and other metrics such as NOI, FFO as appropriate
• Incorporate CapEx and maintenance CapEx assumptions that properly flow through the model
• Combine metrics such as Loan-To-Value (LTV) and Loan-to-Cost (LTC) ratios to start evaluating credit risk
• Construct debt amortization schedules and distinguish between levered and unlevered returns
• Proper treatment of capitalized interest expense during construction period vs. expensing interest post-construction
• Calculate relevant credit ratio and leverage statistics (DSCR, etc.) to determine ideal mix of debt and equity capital
• Refine equity injection required with debt sweep logic to maintain a minimum level of working capital
• Calculate key financial return metrics including levered and unlevered cash-on-cash IRR, multiple of capital, etc.
• Layer on sensitivity analyses to simulate various scenarios reflecting fluctuations in key drivers of profitability
• Model out capital structure nuances: contributed capital tiers, desired leverage, JV partner shares, and IRR thresholds
• Understand sensitivity of accruals and fund-level IRR & equity multiples driven by changes in levered cash flows

Create a complete hotel financial model from construction/funding to a full breakdown of revenue streams and operating costs. Learn how to model the various revenue and expense drivers related to hotel operations & understand relevance to brand/positioning, chain scale, on-site managed services, and industry-standard P&L classifications. Feed these cash flows into a robust financial valuation that accounts for various mixes of debt and equity. Also become familiar with hotel-specific metrics such as RevPAR and ADR which are used to assess performance/value across individual rooms, room types, brands, or the property overall.

Learning Objectives

• Construct Sources and Uses of Funds, identify and project revenue and expenses based on drivers for condos
• Build a dynamic and integrated model that forecasts cash flows, NOI, cap rates and other relevant metrics
• Compute permitted debt levels and leverage constraints, including debt amortization and equity requirements
• Calculate financial returns (IRR, multiple of capital, breakeven) and sensitivity analysis to maximize equity returns

Sources & Uses of Funds and Construction / Pre-Construction Roll-up

• Understand the importance of construction and pre-construction inputs, as they control the CF and P&L of the model
• Project Sources of Funds: developer vs. investor equity, mezzanine vs. senior debt and associated financing costs
• Delineate hard costs (raw materials, excavation, demolition, construction, doors) and relevant depreciation treatment
• Account for soft costs (legal, architects, designers, engineers, insurance, taxes, marketing) and expense treatment
• Compile a rent roll summarizing the various units, complete with occupancy, market rent, and square footage
• Analyze other types of costs (FF&E, tenant improvements) that are incurred as move-in dates approach

Revenue and Expense Drivers

• Split units by pricing (Market, Pre-Sales, Affordable) and maximize floor area ratio (FAR) for each unit based on lot size
• Capture key revenue drivers such as: pre-sale / closing rates (sales path) and price per square foot (or per unit)
• Incorporate number of employee units, parking income, concessions, and other ancillary fees revenue
• Net out revenue deductions associated with exiting via property sale (broker fees, marketing fees, etc.)
• For continuous leasing, analyze individual operating expenses (maintenance, security, common area, payroll, management fees, deposits/closing, administrative, insurance, utilities, taxes, etc.)
• Factor in the absence of tenants sharing any of the costs of property taxes, insurance, and maintenance
• Account for security deposits, closing costs, and lease cancelling charges, affecting monthly timing on tenant income
• Determine whether the condominium is subject to specific electricity charges in certain markets (may be based on a stated amount in the lease, annual surveys of usage, submetering of usage, or direct metering)

CF Model Integration with Leverage and Equity Requirements

• Construct P&L and cash flow model for cash-on-cash analyses and other metrics such as NOI, FFO as appropriate
• Incorporate CapEx and maintenance CapEx assumptions that properly flow through the model
• Combine metrics such as Loan-To-Value (LTV) and Loan-to-Cost (LTC) ratios to start evaluating credit risk
• Construct debt amortization schedules and distinguish between levered and unlevered returns
• Proper treatment of capitalized interest expense during construction period vs. expensing interest post-construction
• Calculate relevant credit ratio and leverage statistics (DSCR, etc) to determine ideal mix of debt and equity capital
• Refine equity injection required with debt sweep logic to maintain a minimum level of working capital
• Calculate key financial return metrics including levered and unlevered cash-on-cash IRR, multiple of capital, etc.
• Layer on sensitivity analyses to simulate various scenarios reflecting fluctuations in key drivers of profitability
• Model out capital structure nuances: contributed capital tiers, desired leverage, JV partner shares, and IRR thresholds
• Understand sensitivity of accruals and fund-level IRR & equity multiples driven by changes in levered cash flows

Real estate takes a different twist from traditional companies in that it doesn’t sell or produce any goods. As such, the process of building up the P&L requires a different logic. From quantifying the costs of a development project to the revenue build-up, we explore a master plan for community and condo development to a commercial hotel project.

• Build a sample master plan which involves buying raw land, creating community-wide infrastructure (shared utilities and resources that didn't previously exist) and then constructing buildings for sale or rent
• Understand timeline and construction costs associated with common land and unit specific development
• Model out monthly revenues based on assumptions regarding pre-sales volume, deposits, and various phases of planning, construction and post-construction
• Map out draw down of construction costs and final cash flow stream which dictate capital required, influencing IRR and multiple of capital

Prerequisites

• Accounting & Financial Statements Integration
• Corporate Valuation Methodologies
• Basic Financial Modeling

Video Length / Estimated Total Course Time

2 hours / 3 hours

Evaluate and analyze the acquisition, construction and renovation of a boutique hotel. Quantify hotel-specific construction costs and Sources & Uses of Funds. Perform detailed construction loan analysis that rolls into larger debt funding facility. Funnel into the core projection, estimating REVPAR (Revenue per available room), various revenue streams and operating expenses. Compute management incentives and ultimately roll into Net Cash Flow and IRR.

• Build a sample hotel investment analysis which involves buying land, constructing or renovating a new boutique hotel, industry standards in raising debt capital and of course ultimately, P&L and cash flow analysis to determine returns
• Model out detailed construction loan analysis with various drawdown percentages and interest reserves which feeds the amortization schedule of larger debt funding facility
• Construct projection model based on key factors such as room-nights available, occupancy rates, daily room rate, REVPAR and other relevant factors

Prerequisites

• Accounting & Financial Statements Integration
• Corporate Valuation Methodologies
• Basic Financial Modeling

Video Length / Estimated Total Course Time

1.5 hours / 2 hours