Real Estate Funding Models
Course Length: 1-day
Pre-requisite: None
The finance course demonstrates the impact of debt finance on the project from an investors and from lenders perspective. It will then stay with the lenders perspective and stress cash flows to sub-maximum levels on which credit assessment criteria are based. Delegates are then shown how to calculate lending hurdles for a multi-let property portfolio with varying weights and credit profiles. From the investor’s perspective the Internal Rate of Return (IRR) and affordability measures such as interest and debt service cover ratios are calculated.
Various types of senior debt models will be looked at such as: constant payment, constant amortisation, structured repayment models, incentive periods and changing interest rates. In each case the affordability of a case study property will be assessed and the appropriate senior debt financing structure will be selected from the modelled alternatives.
The considerable impact on the return to the lender of up-front financing fees and prepayment penalties are demonstrated. In the afternoon the course concentrates on complex financing structures such as mezzanine debt, profit shares, joint ventures, tiered IRRs and profit splits. The course will aslo show the delegate how to deal with rolled up interest and debt drawdown calculations in development finance. Finally we consider risk analysis from both the lenders and the investors perspective.
Who will benefit from this course
Property investors who wish to understand how debt will improve returns, what the risks are and as well as those investors who want to improve their chances of obtaining debt by being able to anticipate what lenders do to models to help them assess the risk
Anyone who lends on the security of property assts who wishes to understand the income behaviour of the asset and consequently understand the explicit as well as the hidden risks
Consultants and surveyors who advixe on the above or structure financing option s and proposals on their clients behalf.
Day One (of 1)
Learn how to add finance to an investment project
Part A (morning)
- Revision of cash flow modelling principles: The rent function, Opex and Capex, Net Cash Flow (NCF), Net Present Value (NPV) and Internal Rate of Return (IRR)
- The geared IRR: impact of changing interest rates and changing project returns
- Stressed Cash Flows and credit assessment criteria,Interest cover ratios, loan to value and affordability
- Senior debt models: Amortising, Interest Only, Structured repayment models, incentive and term adjusted interest rates
Learn how to model negotiated real estate financing structures
Part B (afternoon)
- The impact on return to the lender and cost to the investor of financing fees and penalties
- Multiple levels of mezzanine debt
- Multiple term and tranche interest rates
- Profit sharing arrangements and joint ventures
- Tiered IRR structures and profit splits
- Development financing, rolled up interest and debt drawdown
- Risk analysis from both lenders and investors perspective
