Objectives of the training

By the end of this course, participants will be able to:

• Assess the key risk issues in  direct Commercial Real Estate Investments;

• Evaluate a Commercial Real Estate valuation and be aware of the main approaches to the valuation of Commercial Real Estate and the key drivers of value;

• Evaluate the key risks in investing in Real Estate Investment Trusts and Real Estate companies ;

• Review key features of the principal debt financing products and their relative advantages and disadvantages and structure Commercial Real Estate  debt financings taking into account the requirement of both debt providers and equity investors;

Case studies

Case studies will

• mostly focus on the main types of Commercial Real Estate – office, retail and industrial;

• concentrate on large scale transactions involving both single pieces of Commercial Real Estate or portfolios / corporate financings;

• relate to the financing of single asset companies, both developments and existing investments as well as  Commercial Real Estate companies and  Real Estate Investment Trusts

Case studies will be primarily based on examples from Developed Markets

Day 1
Session 1
Overview of developments in the Commercial Real Estate markets
Macroeconomic cycles…what can be learned from past economic cycles?
Recent developments and issues arising from the “credit crisis”
Relative performance of Commercial Real Estate vs other major Asset classes
Key players in the Commercial Real Estate Markets

Session 2
Risks in Commercial Real Estate Investments

Key risks in Commercial Real Estate Financings
Risks inherent in specific types of Commercial Real Estate transactions

Exercise: Review of a commercial real estate financing to identify key credit risks and potential mitigants, based on which participants prepare a rating

Session 3
Principles of Commercial Real Estate valuation
Summary of Commercial Real Estate valuation methods and how the different methods can influence value
Comparable buildings
Capitalisation of yields
Open Market Values
Discounted cashflow valuation methods
Occupational lease terms – examples from selected markets, and how this affects value
Yields in Commercial Real Estate Valuations
Initial yields
Reversionary yields
Equivalent yields
Development vs investment financings, and factors to consider in valuation assumptions

Exercise: Calculating and sensitising Commercial Real Estate Finance valuations and using discounted cashflow techniques

 
Day 2
Session 4
Financial analysis of Commercial Real Estate Companies and Investment vehicles
Typical types of Commercial Real Estate  companies and their approach
Real Estate Investment Trusts (REIT)  vs non REIT
What are the key elements of a creditworthy Commercial Real Estate company – principal elements in credit rating
Operating vs. financing risks
Key accounting issues

Case study: Participants produce a rating for a Commercial Real Estate Company

Session 5
Sensitising the key drivers in a financial model for a Commercial Real Estate Investment
Reviewing the underlying assumptions – are they realistic?
Key drivers of Commercial Real Estate values
Sensitivity analysis and reviewing the financial model – useful Excel Functions

Case Study: participants review and develop  a proposal  for a Commercial Real Estate Investment and sensitise the pre finance returns to assess the impact on rates of return

Session 6
Use of debt in support of Commercial Real Estate Investments 
Financing choices
Private debt financing choices
Development vs investment financings
Asset specific financing
Secured vs unsecured debt
Senior vs subordinated  / mezzanine debt
Sale and leaseback transactions
Capital markets financings
Use of hybrid financings – convertible bonds
Commercial Mortgage Backed securitisations – review of a Commercial Mortgage Backed Securitisation

Debt structuring issues
Repayment profile
Exposure to residual values and lease expiries
Debt service coverage measures
Interest rate management

Case Study:  participants review and sensitise a financial model with a view to developing an acceptable debt structure

Day 3
Session 7
Debt structuring issues and risk mitigation techniques
Use of covenants and developing a covenant package
Debt Service Coverage measures ( interest and debt service coverage)
Asset Coverage measures ( Loan to Value ratio and “top up” requirements)
Development vs. investment financings – completion and cost overrun undertakings
Third party credit support
Completion and cost overrun agreements
Nature of underlying construction contracts

Case Study:  participants prepare the key elements of a Term Sheet and make their recommendations for the financing of a core case study financing proposal

Session 8
Risk and return in Commercial Real Estate Finance – the equity investors’ perspective
Principles of evaluating investments – discounted cashflow methods, NPV and IRR
Overview of company valuation methods
Value creation – the development process; active Real Estate management; financial market influences
Risk and return – Commercial Real Estate Finance vs other asset classes
Use of Equity vs. Subordinated Debt

Case Study: sensitising a financial model to illustrate the sensitivity of equity related returns to key assumptions in the financing structure

Exercise: Valuation of a REIT or Commercial Real Estate Company

Session 9
Final case studies

Participants are given background on selected Commercial Real Estate Investment opportunities in a REIT in either a Developed or Emerging Market and make a presentation  on whether to invest or not.

Conclusion of the programme