Class 1 Lecture Valuation Overview

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1、PRYORClass1VALUATIONOVERVIEWInvestmentObjectivesiFundamentalcomponentsofrealestatefinancialreturnsinclude:CashFlow:Investmentinincomeproducingpropertiesoftengeneratesanincomestreamthatcanbeusedtofunddifferentneeds,suchasretirement.Appreciation:Inadditiontotheperiodiccashflows,thesale

2、(orreversion)cashflowofapropertycanrepresentanincreaseinvalue.PositiveLeverage:Inmanycases,aninvestormayobtainfinancingwithalowerinterestratethantheoverallunleveragedyieldoftheproperty.Thiswillincreasetheyieldtoequity,includingthereductionofthemortgagebalance.TaxAdvantages:Asaresulto

3、fdeferredtaxation,theafter-taxreturnoncommercialrealestatetypicallyisgreaterthananalternativeinvestmentwithacomparablebefore-taxyield.Thedepreciationtaxshieldnormallydefersandsavestaxes,aneffectthatismagnifiedbydebtfinancing.InflationHedge:Realestateinvestmenttypicallyhasbeenanexcell

4、enthedgeagainstinflation.Diversification:Commercialrealestateoffersdiversificationfromotherinvestmentssuchassecurities(stocksandbonds)andcommodities,whichhavedifferentrisks.2InvestmentObjectivesInvestmentstrategiesinclude:CoreWelldiversified,lowriskstrategyTraditionalassetclassesines

5、tablishedlocationsWelloccupiedassetswithstablecashflowsGenerallylowleverageIncomestreamrepresentssignificantpartofexpectedtotalreturnExpectedLeveredReturns:8%to12%Core-PlusModerateriskstrategyCore-typeassets,perhapsneedingsomevalue-addAssetslocatedineitherprimaryorsecondarylocationsM

6、oderateamountofleverageExpectedLeveredReturns:12%to15%3InvestmentObjectivesValue-AddModeratetohighriskstrategyOpportunitytoaddvaluethroughrepositioningLeveragemaybehighValueappreciationcomprisessignificantpartoftotalreturnExpectedLeveredReturns:15%to22%OpportunisticHighrisk/returnstr

7、ategyRepositioningofpoorlymanagedorobsoleteand/orvacantassetsAcquisitionsofentirecompaniesorportfoliosNewbuildingdevelopmentorconversionprojectsLeverageemployedistypicallyhighExpectedLeveredReturns:18%to30%MezzanineIssuance/DebtPurchaseOriginateloansthataremoreaggressivethantypicalmo

8、rtgagesMayco