Introduction to real estate
Download
1 / 42

Introduction to Real Estate - PowerPoint PPT Presentation


  • 325 Views
  • Updated On :

Introduction to Real Estate. History and Concepts. Place vs. Property Rights. Is property ownership natural? Is property ownership desirable? What does ownership entail? How has ownership been used? What can history tell us?. Ancient History. Old Babylonian Period, Iraq.

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Introduction to Real Estate' - dot


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
Introduction to real estate

Introduction to Real Estate

History and Concepts


Place vs property rights
Place vs. Property Rights

  • Is property ownership natural?

  • Is property ownership desirable?

  • What does ownership entail?

  • How has ownership been used?

  • What can history tell us?


Ancient history
Ancient History

  • Old Babylonian Period, Iraq.

  • “In the presence of these witnesses

  • 36 meters square of fallow land from Adad-nuri

  • And Samas-rimeni his sone

  • Sin-Remeni bought

  • 14 shekels of silver, for its full price he paid (weighed)


Document reverse
Document Reverse

  • Witnesses:

    • Nin-melam

    • Ubaia son of Abu-wedum

    • Manum son of Ilanum

    • Etel-pi-Sin son of Sesani

    • Harri-

    • Sin- the equerry

    • Samas-abimu

    • Sin-apil-Sin son of Idin-ili

    • Idin-Estar shepherd of ?

    • Gis-u-a

    • Ipkusa son of Sin-maba

    • Ubaiatumu son of Aputum

    • Idissum-Kamarki

    • Harizum so of la-

    • Damu-ellassu the equerry


Contract
Contract

  • Transfer of ownership (allowing?)

    • Defined quantity of land (where)

    • Full price in weighed silver (why full?)

    • Record of an act

    • Role of witnesses (who were they?)

    • Why so many?

    • Why no date?


China
China

  • 82-character inscription

  • Gebo purchased 30 plots of land from Pengsheng in exchange for four horses.

  • The inscription indicates that they had the land surveyed and drew up a written agreement which was then divided between them.


Introduction to real estate

  • Ceremonial Vessel

  • Bronze Inscription

  • Bronze model of bi-partite deed contract (from later dynasty)


Mortgages
Mortgages

  • Mirashu clan and contingent clan

  • 500 B.C. Nippur. 423 death of Atraxerxes

  • Sogdanius vs. Ochus - Darius II.

  • Mortgage Defaults financed revolution



Real estate as rights
Real Estate as Rights

  • Property: Thing that can be used, enjoyed, conveyed

  • Property Rights: Rights that can be exercised or conveyed by owner

  • Interests in Property: created by owner, pledge or encumber property without giving up ownership.


Estates
Estates

  • How and how rights are owned

  • Estate in possession (or not)

  • Freehold vs. Leasehold

  • Fee simple: free to divide, encumber etc.

  • Leasehold estate: years vs. year to year

    • Lessee leases property from lessor.

  • Title, deed

    • General warranty, special warranty, quitclaim


Title
Title

  • Capital does not exist without title.

  • Capital without title is “dead.”

  • Process of transfer and development matters.

  • Separates first world from third world.


Introduction to real estate
Procedure to gain access to desert land for construction purposes and to register property rights in Egypt (6-14 years)


Title freeing up capital
Title: Freeing up Capital purposes and to register property rights in Egypt (6-14 years)

  • Mortgages free up capital in household savings. “Securitization.”

  • Real estate as fundamental asset.


Land banks
Land Banks purposes and to register property rights in Egypt (6-14 years)

  • Depreciation of Silver (1600’s)

  • Land as fixed capital asset:

  • anti-inflation

  • Scottish proposal: Law 1705

  • Examples from New England:

  • 1686, 1733 –New London

  • Goal: to provide money backed by real asset.


Henry george 1839 1897 freehold vs leasehold
Henry George (1839-1897) purposes and to register property rights in Egypt (6-14 years)Freehold vs. Leasehold

We have reached the deplorable circumstance where in large measure a very powerful few are in possession of the earth's resources, the land and its riches and all the franchises and other privileges that yield a return. These positions are maintained virtually without taxation; they are immune to the demands made on others. The very poor, who have nothing, are the object of compulsory charity. And the rest -- the workers, the middle-class, the backbone of the country -- are made to support the lot by their labor.


Rights to personal enjoyment
Rights to Personal Enjoyment purposes and to register property rights in Egypt (6-14 years)

  • People’s rights vs. personal rights

  • Elimination of private property

  • In its aftermath?


Real estate as an asset

Real Estate as an Asset purposes and to register property rights in Egypt (6-14 years)

Features and valuation


What s special about real estate as an asset class
What's Special About Real Estate as an Asset Class? purposes and to register property rights in Egypt (6-14 years)

Immobility

  • Location is key characteristic

  • Local economic issues prevail in valuation i.e. city-wide employment

  • Micro economic conditions might prevail i.e. street locus

  • Localized knowledge and expertise

  • Subject to local laws, restrictions and conditions

  • Uniqueness of location


Undeveloped
Undeveloped purposes and to register property rights in Egypt (6-14 years)

  • All potential

  • Infinitely lived so timing is crucial

  • Option value to development

  • Land is only as valuable as the associated property rights

  • Building as physical asset


Developed
Developed purposes and to register property rights in Egypt (6-14 years)

  • Depreciating asset

  • Development decision re. capacity choice

  • Hard to conceal or disguise

  • Long development time

  • Relatively expensive

  • Indivisibility of building/land

  • Uniqueness of building makes pricing difficult

  • Requires financing

  • Requires syndication


What s important about real estate
What's Important About Real Estate? purposes and to register property rights in Egypt (6-14 years)

  • Big business : 10% of U.S. economy

  • Component of balance sheets of all businesses as asset or lease liability.

  • Everyone's home >65% of households own.

  • Major securitization of the bond market.

  • Major personal asset and/or liability.

  • >6% of institutional investment portfolios


Securitization
Securitization purposes and to register property rights in Egypt (6-14 years)

  • MBS revolution in 80's pass-throughs

  • High-tech revolution in 90's strips. I.O.'s

  • REIT IPO billions each year.

  • CMBS a major fixed income class

  • Emerging derivatives market


How it works
How it Works purposes and to register property rights in Egypt (6-14 years)

  • Land

    • primary and ancillary righrts

    • Timing of Development & Construction

  • Development

    • Choice: Office, Industrial, Retail, Residential Highest and best use

    • Financing

    • Syndication

  • Management

    • Bridge Permanent Management Leasing

  • Turnover

  • Maintenance

  • Transaction

  • Valuation

  • Marketplace

  • Negotiation

  • Taxes Demolition Alternative use


Introduction to real estate
Land purposes and to register property rights in Egypt (6-14 years)

  • Primary and ancillary rights

  • Timing of Development & Construction


Development
Development purposes and to register property rights in Egypt (6-14 years)

  • Choice: Office, Industrial, Retail, Residential

  • Highest and best use

  • Financing

    • Debt/Equity choice

    • Syndication, partnership structure

    • Development loan

    • Bridge loan


Management
Management purposes and to register property rights in Egypt (6-14 years)

Leasing

  • Tenants

  • Lease terms

  • “bundle” of leases

  • Turnover

  • Maintenance


  • Transaction
    Transaction purposes and to register property rights in Egypt (6-14 years)

    • Valuation

    • Marketplace

    • Negotiation

    • Or demolition and reversion to land


    Methods of valuation
    Methods of Valuation purposes and to register property rights in Egypt (6-14 years)

    • Comparables

    • Replacement Value

    • Discounted Future Cash Flows


    Sources of value
    Sources of Value purposes and to register property rights in Egypt (6-14 years)

    • Land & Other rights

    • Building Leases

    • Options -- granted and owned

    • Strategic Advantage

    • Mortgage "Put"


    Leases
    Leases purposes and to register property rights in Egypt (6-14 years)

    • Lessor: “A person who rents property to another under a lease. (Landlord)”

    • Asking vs. effective rent

    • Term of the Lease

      • Base Rent

      • Expense Responsibility

      • Participating Income

      • Renewal Option

      • Expense Stops

      • CPI Adjustment

    • Office = "Net" or "Triple Net" “A lease providing that the tenant pay for all maintenance expenses, plus utilities, taxes, and insurance. This results in lower risk for investors, who usually form a limited partnership.”


    Example the century tower
    Example: The Century Tower purposes and to register property rights in Egypt (6-14 years)

    • New Haven Office Building at Church and Grove

    • Class A Office Space

    • 24 Floors

    • Ground Floor Retail

    • Parking

    • 285,000 Net Leasable Area

    • Built in 1989, For a price of $50 million

    • Mortgaged & Repossessed

    • Fully Leased with professional offices @ $15 per square foot

    • Flagship Tenant at $10, other tenants at $20

    • Flagship Lease of 7 years, Other Leases at 3 years


    Discount rates
    Discount Rates purposes and to register property rights in Egypt (6-14 years)

    • CAPM possibilities - systematic risk

    • Comparable possibilities

    • Cash flow risk

    • Building like a bond portfolio

    • convertibility

    • re-investment risk & lease renewal

    • diversification & risk

    • borrower risk pass-through


    Performance measures
    Performance Measures purposes and to register property rights in Egypt (6-14 years)

    • Price Per Square Foot

      • Gross and Rentable

    • Cap Rate : NOI/Price

      • Going in

      • Going out


    Performance measures cont
    Performance Measures (cont) purposes and to register property rights in Egypt (6-14 years)

    • Equity Dividend Rate

      • BTCF1/ Equity Investment

    • Debt Coverage Ratio

      • NOI/MTG PMT

    • NPV

      • Profitability: PV/Initial Investment

    • IRR

      • Modified IRR


    Issues with pro forma
    Issues with Pro Forma purposes and to register property rights in Egypt (6-14 years)

    • Single forecast

    • Discount rate choice

    • Assumptions about resale

    • Lacks dynamics and risk

    • Not tied to real economy