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Commercial Real Estate Investments

  • Banking and Financial Markets, Corporate Finance, Fund Management, Risk and Credit
  • Duration: Three days
  • Information

    Commercial Real Estate values are very sensitive to the underlying economic fundamentals as well as the financial markets and interest rates.  Additionally Commercial Real Estate values and performance are also influenced by specific factors such as the quality of the Real Estate, lease terms, tenant risk, market sector and geographic focus making it essential to understand the specifics of each Commercial Real Estate Investment.

    Training methodology

    The teaching approach emphasises “learning by doing” using case studies and examples of specific transactions, where feasible, as the principal method of learning. There will 1 or 2 core case studies throughout the training, using the example of a single asset financing and a Commercial Real Estate Company supplemented by other cases / exercises to illustrate specific issues in the programme.

    Participant pre – requisites

    This is an Intermediate Level programme so participants should already be familiar with the core principles of investment appraisal techniques and company valuation techniques, as well as the core functions in Excel. Some previous familiarity with the financing of /investment in Commercial Real Estate has been assumed.


    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

    Register interest

    As every course we run is tailored to meet the specific needs of each client, we can only provide an estimate after fully understanding your specific requirements. Please complete the form below of call +44 (0) 208 894 4977 to discuss how Taylor Associates can help you.

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