課程三 : 不動產開發財務分析

1. 課程三:不動產開發財務分析

2. 討論重點 • 開發程序 • 投資策略分析 • 財務可行性分析 • 現金流量分析 • 財務報表預測 • 資金來源, 融資決策分析 • 風險分析

3. Three Common Development Situations • There are three common development situation each presenting the developer/investor with different development and investment possibilities Use in search of a site: use to site • this is the most sensible approach • the most efficient way to turn ideas into reality Site in search of a use: site to use • developer investigates a need for specific real estate Capital looking for investment • investor has cash and needs to invest -- e.g. venture capitalist

4. 不動產開發 M A C R O E C O N O M I C S Mortgage Payments R E G U L A T I O N Consumption Sector Social System Political System services rentals, purchases tax Sites services capital tax Public Sector capitalgain user fees Production Sector Interest Regulation Construction Cost Finance Sector Enterprise System

5. The Real Estate Asset Creation Process • As discussed in previous lecture the creation of real estate asset requires a complex and dynamic interaction between several groups: • Production sector • Consumption sector • Financial sector • Public sector • Real estate development occurs only in the presence of interaction between these key groups • The lead group is the production sector • The key player is the developer, the entrepreneur who makes things happen

6. The Players in real estate asset creation process: The Developer • The Developer (entrepreneur): selling time+money • as prime mover seeks maximum possible return with minimum commitment • Return consists of following • profit from sale to long-term investors • long term equity position (for which the developer may or not put any cash) • development fee for “doing the development” • developer may also profit through entities that sell services to the development -- ethical questions? • Prime risk bearer in terms of financial commitment and time

7. Primary Decisions by Developer • The real asset creation decision is an investment decision. • Uncertainties from space that is yet to be created require answers to following questions: • How should the site be acquired? • What type of financing should be obtained? • How should the developer deal with general contractor? • Should major tenants be presigned? • Should the developer take a joint venture partner? • Should developer presell the equity to passive investors? • Should outside management firm be employed? • What government approvals will be needed? • What development risk-control techniques should be employed?

8. A Key Player: The Consumer • The consumer is the key player • It is the demand from the consumer that gives the developer the idea to develop • While the developer may propose, ultimately the consumer decides whether to accept or reject the project • Thus estimating demand from space users is key to success of any development --- more about this later

9. Other Players • The Contractor • General Contractor • Subcontractors • Architects, Engineers, Lawyers • Regulators • zoning • building codes • certificate of occupancy

10. Relationship between project cost and project value Required development period financing Construction loan Project cost = JVP Contribution Developer’s contribution Difference is development profit (or loss) Project value V=NOI/R or discounted cash flow Permanent loan Sale price to long term investors = Long term equity contribution Project represents economic success if lower box exceeds upper box = economic value added (EVA)

11. Risk-Return Perspectives of Players • The measures of return used by various participants in the asset creation process are derived primarily from two sources (see figure) • project cost • construction interest; JVP profit; real estate tax; insurance; contractors profit, architect lawyers and engineers fees etc • project value • permanent loan interest; real estate tax, return on equity; capital gains; federal income tax; tax shield etc. • Participants need to evaluate the different possible combinations of theses factors in light of their own goals and objectives

12. 投資策略分析 Investment Strategy • Identify investment objectives • Analysis of the investment environment • market analysis • legal analysis • sociopolitical analysis • Plans and policies • Forecast of cash flows • Decision criteria • financial criteria • nonfinancial criteria

13. Investment objectives • growth • protection of purchasing power • diversification • tax shelter • regular return • capital gain • retirement income • rapid recovery of equity • entrepreneurial profit

14. Feasibility Analysis • Successful Real Estate Project begins with sound feasibility analysis • Strategy study • Market study • Legal studies • Physical design studies • Compatibility studies • Financial studies

15. REAL ESTATE DEVELOPMENT MODEL Stage 1: IDEA INCEPTION STOP DEVELOPER Stage 2: IDEA REFINEMENT STOP Stage 3: FEASIBILITY STOP Stage 4: CONTRACT NEGOTIATION STOP Stage 5: COMMITMENT POINT Stage 6: CONSTRUCTION Stage 7: INITIATION OF OPERATION Stage 8: ASSET MANGEMENT

16. Plans and policies • contracting • rent fare • large equity • loan amount and type • depreciation plan …

17. Business Strategies • Developers generally specialize in one more phases of real estate in accordance with their expertise • Develop and manage for a long holding period • leasing and management skills are important • Develop and sell after lease-up period or normal vacancy • sell to institutional investors, e.g. insurance co. • may continue to manage • Develop land and building for lease in master planned development • build to suit for single tenants

18. 財務可行性分析Real Estate Capital Budgeting Techniques; Highest and Best Use Analysis • Front Door Approach • Given total project determine the required rent • Back Door Approach • Given market rent determine justified project cost FRONT DOOR MARKET or REQUIRED RENT CAPITAL BUDGET BACK DOOR

19. Shopping center development可行性分析例題 • Consider the case of a small 2-story suburban shopping center on an 800 坪(pin) site costing $300,000,000. The building has 400 pins of space per floor. Construction cost is at a rate of $30,000 per pin, fees and construction interest equal $10,000,000, and indirect cost is $20,000,000. The total budget is thus $354,000,000. It is hoped that lenders will provide 80% of the required funds (or $283,200,000). The term of loan will be 20 years and interest rate is 11.5%, with monthly mortgage payments. The balance of funds required, at least $70,800,000, assuming no working capital and no cost overruns, would be provided by a partnership of equity investors. They require only 6% cash dividend (equity dividend rate or before tax return) on their investment each year. Experience has shown that operating expenses will approximate $5005/pin of gross leasable area or GLA. Real estate taxes are running about $100 per pin for comparable properties in the area. Property management indicates cash replacement cost of $200,000 a year for carpeting, and vandalism loss. Vacancy rate is assumed to be 5%.

20. Highest and Best Use Analysis: shopping center Site : 800 pins Space per floor : 400 pins Site Cost : $300,000,000 Construction Costs : $30,000/pin = $24,000,000 Fees : $10,00,000 Indirect cost : $20,000,000 Total Capital Budget : $354,000,000 Lenders Share of funds : 80% Term of Loan : 20 years Interest Rate : 11.5% With Monthly Mortgage Payments Debt Service Constant : .127968

21. Case Illustration Balance funds required (equity) : $70,800,000 Equity Dividend Rate : 6% Operating Expenses : $500/pin of GLA Real Estate Taxes : $100 /pin of GLA Replacements reserve : $200,000 Vacancy rate : 5%

22. Some Basic Investment Concepts 1.TOTAL PROJECT COST = SITE ACQUISITION COST + CONSTRUCTION COST + FEES AND INTEREST = $354,000,000 2. LOAN TO VALUE RATIO = 80% 3. LOAN AMOUNT = (.8)(354,000,000) = $283,200,000 4.DEBT SERVICE = $238,200,000x.127968 = $36,241,544 5. EQUITY DIVIDEND RATE (EDR)= 6% 6. Gross Leasable Area (GLA) = Total Square footage in the building (400*2=800 pins) 7. Building Efficiency Ratio (BER) = 85% 8. Net Leasable Area (NLA) = 680 pins

23. FRONT DOOR APPROACH : LOAN TO VALUE RATIO Site Acquisition Cost: $300,000,000 + Construction Budget: $24,000,000 + Indirect Cost and Development Fees: $30,000,000 = Total Capital Budget: $354,000,000 x x 1-loan to cost ratio=.2 Loan to Cost Ratio: .8 = = Cash Equity required: $70,800,000 20 yrs. 11.5% monthly pay Mortgage loan:$283,200,000 x x Equity Dividend Rate: 6% Debt Service Constant: .127968 = = Debt Service: $36,241,544 Before Tax Cash Flow: $4,248,000 $40,489,544 CONTINUE NEXT PAGE

24. Net Operating Income : $40,489,544 + Operating Expenses: $400,000 + Real Estate Tax: $80,000 + Replacement Reserve:$200,000 = Effective Gross Income: $41,169,544 (1 - Vacancy Ratio) : .95 = Potential Gross Income: $43,336,322 Net Leasable Area: 680 pins = Rent Required: $63,729.95/pin,year $5,301.83 per pin monthly

25. Sensitivity analysis

28. 資本預算步驟 Capital Budgeting • 確定投資年限 • 衡量原始投入成本 • 估計現金流量.我們必須遵守下列兩個原則: *考慮攸關現金流量 *增量現金流量才是攸關現金流量: /沉入成本不包括為攸關現金流量 /機會成本須列為攸關現金流量 /對其他單位的影響效果須準確認定因本計劃所帶來的效 • 風險分析. • 折現率 • 計算現金流量的現值. • 比較現值與成本

29. 資本預算決策準則 • 回收期間法; 折現後回收期間法 • 淨現值法: NPV • 內部報酬率法: IRR( MIRR) • 獲力指數法: PI

30. 現金流量估算

32. Sensitivity analysis敏感性分析

35. 情境分析

36. Scenario analysis

37. 財務報表預測 Forecasting

39. 不動產融資 Real Estate Financing SUPPLIES OF CAPITAL SERVICE GROUPS USERS OF CAPITAL Mortgage Bankers Mortgage Brokers Real Estate Brokers Investment Bankers Government agencies Syndicators Developers Owners of Homes Owners of income Properties Land Owners E Thrifts Commercial Banks Insurance companies Pension Funds REITs Credit Unions Governments Nonfinancial business Households Foreign Investors D Equity Debt

40. The Players: Development Financing • Joint Venture Partner • provides equity funding for development in return for development profit • The Construction Lender • short term debt financing for project • take-out commitment • The Permanent Lender • provides long term financing • concerned with long term viability of project & loan security • Loan to value ratio; debt coverage ratio; income; equity -- market value is critical • Long term Equity Investor: usually passive investor, limited partner

41. Sources of Development Financing During Construction After Construction construction loan Permanent loan developers equity project cost JVP equity Long term investors equity Permanent Loan Closing

42. Project development financing: An overview • Estimating cost • hard cost • soft cost • Construction loan • short term loans • open-end or “spec” loan • floating interest rate : Prime rate plus mark-up • method of disbursement • draw request; retainage • commitment letter • availability of permanent financing • “spec” loan or open end loan • mini-perm loan

43. Project development financing • Permanent loan • permanent or take-out commitment • contingencies • minimum rent-up; • maximum period to acquire construction loan; • approval of design changes; • provision for gap financing • Other provisions • recourse versus non-recourse • assignment of commitment letter to construction lender • Triparty buy-sell agreement where permanent lender buys construction after completion

45. 風險分析 Risk Measures • Debt Coverage Ratio (DCR) = Net Operating Income/Debt Service=40,489,544/36,241,544=1.1172. • Default Ratio (DR) = (Operating expenses + Real Estate Taxes + Replacement Reserve+ Debt Service)/PGI=(400,000+80,000+200,000+36,241,544)/43,336,362=0.85 Project could withstand a vacancy of x% = (1- DR) = (1 - .85) = 15%

46. 折舊費用計算 Depreciation expenses

47. 報酬衡量 Return measurement 1. Equity Dividend Rate (EDR) = Before Tax Cash Flow/Initial Equity Investment=6%. 2. Return on Investment (ROI) = Net Operating Income/Total Capital Investment=40,489,544/354,000,000=0.11438

48. 財務槓桿分析 Principles of Financial Leverage • POSITIVE LEVERAGE • ROI > MC • EDR > ROI • EDR > MC • NEGATIVE LEVERAGE • ROI < MC • EDR < ROI • EDR < MC • NEUTRAL LEVERAGE

49. Financial Leverage Analysis • A 11.438% return on investment is lower than either the interest rate of 11.5% or the mortgage constant of 12.769% • Thus we have negative leverage • A small drop in borrowed funds permitted a large increase in cash equity. This improved the solvency position . • When interest rates are high more equity (often raised through partnerships) is used to improve project feasibility.

50. 決策準則 Decision Criteria • financial criteria • measure of return - measure of risk * ROI * payback period * NPV * debt coverage ratio * IRR * default ratio * leverage • nonfinancial criteria • management reputation • environment acceptance • neighborhood