Real Estate Valuation

Course Content:

Commercial Property – Assessing Income

• Appraisal of Income Property – the RICS Guidelines and their international equivalents
• Comparison with corporate finance valuation
• Reporting according to IFRS standards
• Case Study: Impact of International Accounting Standard 17 (leases) on real estate valuation
• Bricks, Mortar, and the Building Envelope
• Lifecycle costing
• Tests of Financial Solvency (Static Analysis)
• Tests of Profitability (Dynamic Analysis)

Case Study: Applying the depreciated replacement cost methodology to value specialized (iconic) buildings

Residential Property – Assessing Capital Value

• Why buy residential real estate?
• Does rental income matter for residential property?
• What are the main problems?
• Evidence from pension fund holding in Europe
• Qualitative issues, competition, style and marketing

Case Study: The addition of real estate to the GIPS (CFA Institute) valuation guidelines

Net Operating Income (NOI)

• Gross and net income
• Differences in calculating NOI
• Overall capitalisation rate
• Capital expenditure issues
• Differences between property types
• Approaches to the cap rate

Case Study: The band of investment approach

Projecting Cash Flows

• The dynamic behaviour of the 4-Q model: stability versus oscillations.
• Real Estate Pricing Behaviour: backward or forward looking?
• Forecasting markets: Univariate analysis, Vector Auto regressions, structured models.
• Forecasting examples.
• The definition and evaluation of “risk”

Case Study: Forecasting Techniques

Creating and using a detailed Discounted Cash Flow (DCF) model

• Debt service and pre-tax cash flow
• The sinking fund
• Lease variations
• Differences between sectors
• Estimating resale value
• Terminal capitalisation rates

Exercises: Delegates will use a number of real world examples to create and use spreadsheets for DCF valuation

Cost of Capital for Real Estate Companies

• What is the significance of the cost of capital?
• Differentiation between debt and equity
• Hybrid products
• The pecking order theory of cost of capital
• The role of debt in corporate management

Case Study: Economic Value Added (EVAtm) as applied to real estate companies

Real Options and the Real Estate process

• Does property possess real options?
• Examples of possible real estate real options
• Call Option approach to land value
• Samuelson-McKean approach
• Difficulties of measurement
• Potential benefits

Exercise: Participants will value a potential development on the basis of conventional DCF and real option analysis

Land Prices

• Should land prices be calculated separately?
• How cyclical are land prices?
• Modelling land prices
• Empirical evidence on land prices
• Forecasting land prices

Case Study: Data availability on land prices

The Cost Approach

• Type of costs
• Methods of evaluating costs
• Sources of cost estimation
• Incurable and curable depreciation
• Market extraction method

Exercises: Delegates will use spreadsheet models to calculate a range of cost estimates for individual properties

The Sales Comparison Approach

• Value, Worth and Price
• Sources of Comparable Data
• Identifying points of comparison and difference
• Sales Comparison Approach Example

Exercises: Using the sales comparison approach in practice

Highest and Best Use Approach

• Definitions of HBU
• Site Value
• Improved Value
• Calculating HBU

Case Study: Business Plan for Dubai Sports City analysed

Valuation in Practice

• How is valuation practiced by chartered surveyors?
• What are the key elements of the RICS and TEGOVOFA Valuation Guidelines?
• What is the evidence on valuation practice in the UK?
• How is valuation practiced differently elsewhere in the world?

Discounts available for multiple participants:

• 3-4 participants: 15% discount per participant
• 5-6 participants: 20% discount per participant
• 7-8 participants: 25% discount per participant
• 9 or more participants: 30% discount per participant