Real Estate Finance & Investments + Excel templates CD-ROM

, by BRUEGGEMAN

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ISBN: 9780072977363 | 0072977361
Cover: Hardcover
Copyright: 3/3/2004

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Supplemental Materials

PART ONE INTRODUCTION

An Introduction to Real Estate Investments: Legal Concepts

(12)

Property Rights and Estates

(4)

Definition of Estate

(1)

Classification of Estates

(1)

Examples of Freehold Estates

(1)

Estates Not Yet in Possession (Future Estates)

(1)

Leasehold Estates

(1)

Interests and Easements

(1)

Assurance of Title

(1)

The Meaning of Title

(1)

Deeds

(1)

Methods of Title Assurance

(2)

Abstract and Opinion Method

(1)

The Title Insurance Method

(1)

Recording Acts

(1)

Limitations on Property Rights

(2)

Financing: Notes and Mortgages

(25)

Notes

(1)

The Mortgage Instrument

(5)

Definition of a Mortgage

(1)

Relationship of Note to a Mortgage

(1)

Interests That Can Be Mortgaged

(1)

Minimum Mortgage Requirements

(2)

Important Mortgage Clauses

(2)

Assumption of Mortgage

(1)

Acquiring Title ``Subject to'' a Mortgage

(2)

Property Covered by a Mortgage

(1)

Junior Mortgages

(1)

Recording of Mortgages

(1)

Other Financing Sources

(1)

Seller Financing

(1)

Land Contracts

(1)

Default

(1)

What Constitutes Default

(1)

Alternatives to Foreclosure: Workouts

(4)

Restructuring the Mortgage Loan

(2)

Transfer of Mortgage to a New Owner

(1)

Voluntary Conveyance

(1)

Friendly Foreclosure

(1)

Prepackaged Bankruptcy

(1)

Foreclosure

(6)

Judicial Foreclosure

(1)

Redemption

(1)

Sales of Property

(3)

Effect of Foreclosure on Junior Lienors

(1)

Deficiency Judgment

(1)

Taxes in Default

(1)

Bankruptcy

(5)

Liquidation

(1)

Chapter 11

(1)

Chapter 13

(5)

The Interest Factor in Financing

(32)

Compound Interest

(1)

Compound or Future Value

(6)

Use of Compound Interest Tables

(3)

Use of Financial Calculators

(2)

Present Value

(4)

A Graphic Illustration of Present Value

(2)

Using Calculators for Finding Present Values

(2)

Compound or Future Value of an Annuity

(4)

Use of Compound Interest Factors for Annuities

(2)

Present Value of an Annuity

(4)

Use of the Present Value of an Annuity Factors

(3)

Accumulation of a Future Sum

(1)

Investments with Single Receipts

(1)

Determining Yields or Internal Rates of Return on Investments

(10)

Yields on Investment Annuities

(2)

Effective Annual Yields: Extensions

(1)

Solving for Annual Yields with Partial Periods: An Extension

(4)

PART TWO FINANCING RESIDENTIAL PROPERTIES

Fixed Rate Mortgage Loans

(40)

Determinants of Mortgage Interest Rates: A Brief Overview

(4)

The Real Rate of Interest: Underlying Considerations

(1)

Interest Rates and Inflation Expectations

(1)

Interest Rates and Risk

(1)

A Summary of Factors Important to Mortgage Pricing

(1)

Development of Mortgage Payment Patterns

(5)

Early Mortgage Lending Patterns

(1)

The Constant Amortization Mortgage Loan (CAM)

(1)

Fully Amortizing Constant Payment Mortgage Loans (CPM)

(3)

Constant Payment and Constant Amortization Loans: A Comparison

(12)

Determining Loan Balances

(1)

Loan Closing Costs and Effective Borrowing Costs: Fully Amortized Loans

(3)

Truth-in-Lending Requirements and the Annual Percentage Rate

(1)

Loan Fees and Early Repayment: Fully Amortized Loans

(5)

Charging Fees to Achieve Yields, or Pricing CPMs

(1)

Other Loan Patterns

(3)

Partially Amortizing Constant Payment Loans

(1)

Zero Amortization or ``Interest Only'' Loans

(1)

Increasing Loan Balances, or Negative Amortization

(1)

Amortization Schedules and Callable Loans

(1)

Inflation and Mortgage Pricing Problems

(13)

Effects on Lenders and Borrowers

(3)

The Graduated Payment Mortgage (GPM)

(5)

Reverse Annuity Mortgages (RAMs)

102

(5)

Appendix Graduated Payment Mortgages---Extensions

107

(3)

Adjustable Rate and Variable Payment Mortgages

110

(30)

ARMs and Lender Considerations

111

(3)

The Price Level Adjusted Mortgage (PLAM)

114

(20)

PLAM: Payment Mechanics

115

(2)

ARMs: An Overview

117

(1)

ARMs Illustrated

118

(2)

Problems Lenders and Borrowers Face with ARMs

120

(1)

Risk Premiums, Interest Rate Risk, and Default Risk on ARMs

121

(2)

Expected Yield Relationships and Interest Rate Risk

123

(3)

ARM Payment Mechanics

126

(6)

Expected Yields on ARMs: A Comparison

132

(2)

Shared Appreciation Mortgages

134

(6)

Residential Financial Analysis

140

(32)

Incremental Borrowing Cost

140

(8)

Early Repayment

142

(1)

Origination Fees

143

(1)

Incremental Borrowing Cost versus a Second Mortgage

144

(1)

Relationship between the Incremental Cost and the Loan-to-Value Ratio

144

(3)

Differences in Maturities

147

(1)

Loan Refinancing

148

(4)

Early Repayment: Loan Refinancing

149

(1)

Effective Cost of Refinancing

150

(1)

Borrowing the Refinancing Costs

151

(1)

Early Loan Repayment: Lender Inducements

152

(1)

Market Value of a Loan

153

(2)

Effective Cost of Two or More Loans

155

(3)

Second Mortgages and Shorter Maturities

156

(2)

Effect of Below Market Financing on House Prices

158

(1)

Assuming a Lower Loan Balance

159

(1)

Cash Equivalency

159

(1)

Cash Equivalency: Smaller Loan Balance

160

(1)

Cash Equivalency: Concluding Comments

161

(1)

Wraparound Loans

162

(2)

Buydown Loans

164

(4)

Appendix After-Tax Effective Interest Rate

168

(4)

Single Family Housing: Pricing, Investment, and Tax Considerations

172

(27)

Overview

172

(14)

Growth in House Prices

172

(2)

Demographics

174

(3)

Income and Employment

177

(1)

Renting versus Owning

177

(9)

Supply Overview

186

(13)

The Influences of Neighborhoods/Municipalities

186

(1)

Capitalization Effects: Price Premiums

187

(1)

Pricing Property: Appraisals

188

(11)

Underwriting and Financing Residential Properties

199

(29)

Underwriting Default Risk

199

(1)

Classification of Mortgage Loans

200

(3)

Conventional Mortgage Loans

200

(1)

Insured Conventional Mortgage Loans

201

(1)

FHA Insured Mortgage Loans

202

(1)

VA Guaranteed Mortgage Loans

202

(1)

The Underwriting Process

203

(4)

Borrower Income

204

(1)

Verification of Borrower Assets

205

(1)

Assessment of Credit History

206

(1)

Estimated Housing Expense

206

(1)

Other Obligations

206

(1)

Compensating Factors

206

(1)

The Underwriting Process Illustrated

207

(7)

Underwriting Standards---Conventional and Insured Conventional Mortgages

207

(2)

Underwriting Standards---FHA Insured Mortgages

209

(3)

Underwriting Standards---VA Guaranteed Mortgages

212

(1)

Underwriting and Loan Amounts---A Summary

212

(2)

The Closing Process

214

(5)

Fees and Expenses

214

(1)

Prorations, Escrow Costs, and Payments to Third Parties

215

(2)

Statutory Costs

217

(1)

Requirements under the Real Estate Settlement and Procedures Act (RESPA)

217

(2)

Settlement Costs Illustrated

219

(9)

Federal Truth-in-Lending (FTL) Requirements

219

(2)

Truth-in-Lending Sample Disclosure

221

(1)

Establishing the APR under Federal Truth-in-Lending Requirements

221

(2)

ARMs and Truth-in-Lending Disclosure

223

(5)

PART THREE FINANCING INCOME PROPERTIES (DEBT AND EQUITY)

Introduction to Income-Producing Properties: Leases and the Market for Space

228

(27)

Property Types

228

(2)

Regional Economic Influences on Property Values

230

(4)

Analogy with the Law of Comparative Advantage

230

(2)

Economic Base Analysis---Location Quotients

232

(2)

Supply and Demand Analysis

234

(6)

Local Market Studies of Supply and Demand

237

(1)

Location and User-Tenants

238

(2)

The Business of Real Estate

240

(1)

The ``Market'' for Income-Producing Real Estate

241

(1)

Leases

242

(9)

General Lease Terms for Specific Property Types

242

(1)

Financial Contents of Leases

243

(4)

Effective Rent

247

(4)

Income Potential---Real Estate Assets

251

(4)

Vacancy

251

(4)

Valuation of Income Properties: Appraisal and the Market for Capital

255

(37)

Introduction

255

(1)

Valuation Fundamentals

255

(1)

Appraisal Process and Approaches to Valuation

256

(1)

Sales Comparison Approach

257

(2)

Income Approach

259

(10)

Capitalization Rate

261

(2)

Capitalization Rate---A Note of Caution

263

(1)

Discounted Present Value Techniques

263

(1)

Selection of a Discount Rate (r)

264

(2)

Using Approximations to Estimate Reversion Values

266

(3)

Land Values: Highest and Best Use Analysis

269

(2)

Volatility in Land Prices

270

(1)

``Highest and Best Use'' Analysis

270

(1)

Mortgage-Equity Capitalization

271

(2)

Reconciliation: Sales Comparison and Income Capitalization Approaches

273

(1)

Exploring the Relationships between Changing Market Conditions, Cap Rates, and Property Values

273

(4)

A Closing Note on Cap Rates and Market Conditions

277

(1)

A Word of Caution---Simultaneous Effects of Real Estate Market Forces and Interest Rates on Property Values

278

(1)

Valuation of a Leased Fee Estate

278

(1)

Cost Approach

279

(3)

Valuation Case Study---Oakwood Apartments

282

(10)

ARGUS Solution

286

(6)

Investment Analysis and Taxation of Income Properties

292

(28)

Motivation for Investing

292

(1)

Real Estate Market Characteristics and Investment Strategies

293

(2)

``The Real Estate Cycle''

293

(2)

Investment Strategies

295

(1)

Marketing Investments: Projecting Cash Flows

295

(1)

Office Building Example

295

(8)

Base Rent

298

(1)

CPI Adjustment

298

(1)

Expense Stops

299

(2)

Net Operating Income

301

(1)

Expected Outlays for Replacements and Capital Improvements

302

(1)

Estimated Sale Price

302

(1)

Introduction to Investment Analysis

303

(1)

Internal Rate of Return (IRR)

303

(1)

Present Value

304

(1)

ARGUS Solution

304

(1)

Introduction to Debt Financing

304

(4)

Measures of Investment Performance Using Ratios

306

(1)

Before-Tax Cash Flow from Sale

306

(2)

Summary of Investment Analysis Calculations

308

(1)

Taxation of Income-Producing Real Estate

308

(1)

Taxable Income from Operation of Real Estate

309

(2)

Depreciation Allowances

309

(1)

Loan Points

310

(1)

Tax Liability and After-Tax Cash Flow

311

(1)

Taxable Income from Disposal of Depreciable Real Property

311

(1)

After-Tax Investment Analysis

312

(3)

After-Tax Cash Flow from Operations

312

(1)

After-Tax Cash Flow from Sale

313

(1)

After-Tax IRR

314

(1)

Effective Tax Rate

314

(1)

A Note about Passive Losses

315

(5)

Special Expectations to PAL Rules

316

(4)

Financial Leverage and Financing Alternatives

320

(35)

Introduction to Financial Leverage

320

(6)

Conditions for Positive Leverage---Before Tax

321

(4)

Conditions for Positive Leverage---After Tax

325

(1)

Break-Even Interest Rate

326

(2)

Risk and Leverage

328

(2)

Underwriting Loans on Income Properties

330

(2)

Market Study and Appraisal

330

(1)

Borrower Financials

330

(1)

The Loan-to-Value Ratio

331

(1)

The Debt Coverage Ratio

331

(1)

Other Loan Terms and Mortgage Covenants

332

(2)

Alternatives to Fixed Rate Loan Structures

334

(1)

Participation Loans

335

(5)

Lender Motivations

335

(1)

Investor Motivations

336

(1)

Participation Example

336

(4)

Sale-Leaseback of the Land

340

(2)

Effective Cost of the Sale-Leaseback

342

(1)

Interest-Only Loans

342

(1)

Accrual Loans

342

(4)

Structuring the Payment for a Target Debt Coverage Ratio

344

(2)

Convertible Mortgages

346

(2)

Lender's Yield on Convertible Mortgage

346

(2)

Comparison of Financing Alternatives

348

(2)

Monument Office Example---ARGUS Solution with a Loan

350

(5)

Risk Analysis

355

(31)

Introduction

355

(12)

Comparing Investment Returns

355

(1)

Types of Risk

356

(2)

Due Diligence in Real Estate Investment Risk Analysis

358

(1)

Sensitivity Analysis

358

(4)

Partitioning the IRR

362

(1)

Variations in Returns and Risk

363

(4)

Retail Case Study---Westgate Shopping Center

367

(3)

Westgate Shopping Center Scenario Analysis

368

(2)

Westgate Shopping Center---Argus Analysis

370

(1)

Lease Rollover Risk

370

(2)

Market Leasing Assumptions with Renewal Probabilities

372

(1)

Market Rent

373

(1)

Months Vacant

373

(1)

Leasing Commissions

373

(1)

Tenant Improvements

373

(1)

Industrial Case Study---Worthington Distribution Center

373

(3)

Solution with ARGUS

376

(1)

Risk and Leverage

376

(3)

A ``Real Options'' Approach to Investment Decisions

379

(7)

Traditional Approach to Land Valuation

380

(1)

Real Option Approach to Land Valuation

381

(1)

Real Options Extensions and Strategy

382

(4)

Disposition and Renovation of Income Properties

386

(20)

Disposition Decisions

386

(2)

A Decision Rule for Property Disposal

387

(1)

IRR for Holding versus Sale of Property

388

(3)

Returns to a New Investor

391

(4)

Marginal Rate of Return

391

(4)

Refinancing as an Alternative to Disposition

395

(2)

Incremental Cost of Refinancing

395

(1)

Refinancing at a Lower Interest Rate

396

(1)

Renovation as an Alternative to Disposition

397

(2)

Renovation and Refinancing

399

(1)

Rehabilitation Investment Tax Credits

400

(6)

Low-Income Housing

402

(4)

Financing Corporate Real Estate

406

(23)

Lease-versus-Own Analysis

407

(13)

Leasing versus Owning---An Example

407

(1)

Cash Flow from Leasing

408

(1)

Cash Flow from Owning

408

(2)

Cash Flow from Owning versus Leasing

410

(1)

Return from Owning versus Leasing

410

(1)

Importance of the Residual Value of Real Estate

411

(2)

The Investor's Perspective

413

(1)

A Note on Project Financing

414

(1)

Factors Affecting Loan-versus-Lease Decisions

415

(5)

The Role of Real Estate in Corporate Restructuring

420

(1)

Sale-Leaseback

421

(3)

Refinancing

424

(1)

Investing in Real Estate for Diversification

424

(3)

Appendix Real Estate Asset Pricing and Capital Budgeting Analysis: A Synthesis

427

(2)

PART FOUR FINANCING PROPOSED PROJECTS

Financing Project Development

429

(37)

Introduction

429

(1)

Overview: The Planning and Permitting Process

429

(3)

The Development of Income-Producing Property

432

(4)

Market Risks and Project Feasibility

434

(2)

Project Risks

436

(1)

Project Development Financing---An Overview

436

(2)

Lender Requirements in Financing Project Development

438

(9)

Loan Submission Information for Loan Requests---An Overview

438

(4)

Contingencies in Lending Commitments

442

(1)

The Construction or Interim Loan

443

(1)

Methods of Disbursement---Construction Lending

444

(1)

Interest Rates and Fees

444

(1)

Additional Information for Interim Loan Submission

445

(1)

Requirements to Close the Interim Loan

445

(1)

The Permanent Loan Closing

446

(1)

Project Development Illustrated

447

(9)

Project Description and Project Costs

447

(5)

Market Data and Tenant Mix

452

(1)

Pro Forma Construction Costs and Cash Flow Projections

453

(3)

Feasibility, Profitability, and Risk---Additional Issues

456

(10)

Profitability before and after Taxes

456

(3)

Sensitivity Analysis, Risk, and Feasibility Analysis

459

(7)

Financing Land Development Projects

466

(29)

Characterization of the Land Development Business

466

(2)

The Land Development Process---An Overview

468

(5)

Acquisition of Land---Use of the Option Contract

468

(2)

Financing and Development

470

(3)

Lender Requirements in Financing Land Development

473

(3)

Detailed Cost Breakdowns

475

(1)

General Contracts and Subcontracts

475

(1)

Residential Land Development Illustrated

476

(11)

Market Conditions and Site Plan

476

(3)

Estimating Development Cost and Interest Carry

479

(8)

Estimating Release Prices per Parcel Sold

487

(1)

Loan Request and Repayment Schedule

487

(1)

Project Feasibility and Profitability

487

(8)

Project IRR and Net Present Value

490

(1)

Entrepreneurial Profits

491

(1)

Sensitivity Analysis

491

(4)

PART FIVE ALTERNATIVE REAL ESTATE INVESTMENT VEHICLES

Partnerships, Joint Ventures, and Syndications

495

(21)

Introduction: What Is a Syndicate?

495

(1)

Use of the Limited Partnership in Private and Public Syndicates

496

(1)

Private Syndication Problem Illustrated

496

(4)

Financial Considerations---Partnership Agreement

497

(1)

Operating Projections

498

(1)

Statement of Before-Tax Cash Flow (BTCF)

499

(1)

Calculation of Net Income or Loss

500

(1)

Calculation of Capital Gain from Sale

500

(1)

Capital Accounts

500

(4)

Distribution of Cash from Sale of Asset

502

(1)

Calculation of After-Tax Cash Flow and ATIRR on Equity

502

(2)

Partnership Allocations and Substantial Economic Effect

504

(1)

Capital Accounts and Gain Charge-Backs

505

(2)

Use of the Limited Partnership in Private and Public Syndicates

507

(1)

Use of Corporate General Partners

508

(1)

Private versus Public Syndicates

508

(2)

Accredited Investors---Regulation D

509

(1)

Regulation of Syndicates

510

(2)

Investment Objectives and Policies

510

(1)

Promoters' and Managers' Compensation

511

(1)

Investor Suitability Standards

511

(1)

Federal and State Securities Authorities

512

(1)

Joint Ventures

512

(4)

The Secondary Mortgage Market: Pass-Through Securities

516

(27)

Introduction

516

(1)

Evolution of the Secondary Mortgage Market

516

(1)

Early Buyers of Mortgage Loans

517

(1)

A Secondary Market after 1954

517

(1)

FNMA's Changing Role

518

(1)

The Government National Mortgage Association

518

(2)

Mortgage-Backed Securities and the GNMA Payment Guarantee

519

(1)

The Federal Home Loan Mortgage Corporation

520

(1)

Operation of the Secondary Mortgage Market

520

(2)

Direct Sale Programs

520

(1)

The Development of Mortgage-Related Security Pools

521

(1)

Mortgage-Backed Bonds

522

(4)

Pricing Mortgage-Backed Bonds

523

(1)

Subsequent Prices

524

(2)

Mortgage Pass-Through Securities

526

(11)

Important Characteristics of Mortgage Pools

527

(4)

Mortgage Pass-Through Securities: A General Approach to Pricing

531

(2)

Mortgage Pass-Through Payment Mechanics Illustrated

533

(1)

Prepayment Patterns and Security Prices

534

(2)

Prepayment Assumptions

536

(1)

The Effects of Prepayment Illustrated

537

(6)

Security Prices and Expected Yields

539

(1)

Market Interest Rates and Price Behavior on Mortgage Pass-Throughs

539

(1)

A Note on MBBs and MPTs

540

(3)

The Secondary Mortgage Market: CMOs and Derivative Securities

543

(37)

Introduction

543

(1)

Mortgage Pay-Through Bonds (MPTBs)

543

(1)

Collateralized Mortgage Obligations

544

(14)

CMOs Illustrated

545

(2)

CMO Mechanics

547

(5)

CMOs: Pricing and Expected Maturities

552

(3)

CMO Price Behavior and Payment Rates

555

(1)

CMO Tranche Variations

556

(2)

Derivatives Illustrated

558

(6)

Yield Enhancement

561

(1)

IO and PO Strips

561

(3)

Convexity

564

(1)

Residential Mortgage-Related Securities: A Summary

564

(2)

Residential Mortgage-Related Securities: Some Closing Observations

566

(1)

Commercial Mortgage-Backed Securities (CMBSs)

566

(11)

Rating Commercial Mortgage-Backed Securities

570

(2)

Mortgage-Related Securities and REMICs

572

(1)

REMICs: Other Considerations

573

(4)

Appendix Duration---An Additional Consideration in Yield Measurement

577

(3)

Real Estate investment Trusts (REITs)

580

(23)

Introduction

580

(3)

Legal Requirements

580

(3)

Tax Treatment

583

(1)

Violation Penalties and Status Termination

583

(1)

Taxable REIT Subsidiaries

583

(1)

Types of Trusts

583

(8)

Equity Trusts

584

(1)

The Investment Appeal of Equity Trusts

585

(1)

Private REITs

586

(1)

Importance of FFO (Funds from Operations)

586

(2)

REIT Expansion and Growth

588

(3)

Important Issues in Accounting and Financial Disclosure: Equity REITs

591

(4)

Tenant Improvements and Free Rents: Effects on FFO

591

(1)

Leasing Commissions and Related Costs

592

(1)

Use of Straight-Line Rents

592

(1)

FFO and Income from Managing Other Properties

593

(1)

Types of Mortgage Debt and Other Obligations

593

(1)

Existence of Ground Leases

593

(1)

Lease Renewal Options and REIT Rent Growth

594

(1)

Occupancy Numbers: Leased Space or Occupied Space?

594

(1)

Retail REITs and Sales per Square Foot

595

(1)

Additional Costs of Being a Public Company

595

(1)

The Investment Appeal of Mortgage REITs

595

(8)

Financial Analysis of an Equity REIT Illustrated

597

(6)

Real Estate Investment Performance and Portfolio Considerations

603

(24)

Introduction

603

(1)

The Nature of Real Estate Investment Data

603

(1)

Sources of Data Used for Real Estate Performance Measurement

604

(2)

REIT Data: Security Prices

604

(1)

Hybrid and Mortgage REITs

604

(2)

NCREIF Property Index: Property Values

606

(1)

Data Sources for Other Investments

606

(1)

Cumulative Investment Return Patterns

606

(1)

Computing Holding Period Returns

607

(2)

Computing Investment Returns

609

(1)

Risk, Return, and Performance Measurement

609

(2)

Risk-Adjusted Returns: Basic Elements

610

(1)

Elements of Portfolio Theory

611

(4)

Calculating Portfolio Returns

613

(1)

Portfolio Risk

613

(3)

Portfolio Weighting: Trading Off Risk and Return

616

Real Estate Returns, Other Investments, and the Potential for Portfolio Diversification

615

(12)

Portfolio Diversification: EREITs and Other Investments

618

(2)

Public versus Private Real Estate Investments

620

(1)

Real Estate Performance and Inflation

621

(6)

Index

627

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Real Estate Finance & Investments + Excel templates CD-ROM

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