Subjective Real Estate Valuation G. Jason Goddard

Transcript:Subjective Real Estate Valuation G. Jason Goddard:
Subjective Real Estate Valuation G. Jason Goddard Chapter 8 Outline Chapter Highlights For-Sale Projects vs. For-Lease Projects The Skyscraper’s Curse- for-sale projects and the macro economy The Case of the Discounted Sellout Valuation Subjectivity in For-Sale Investments Chapter Definitions Absorption: When a property is leased or purchased after construction or renovation. Discounted cash flow (DCF) model: Income approach valuation methodology utilizing a multi-year view of the revenues and the expenses for a property which are received during the defined holding period of the investment. Discounted Sellout: valuation model used in for-sale investment scenarios. Payback ratio: In for-sale projects, it is the relationship between the required loan repayment per unit relative to the amount of loan per unit. Qualified presale: In a for-sale project, where a prospective buyer has put down deposit towards purchasing a unit and has been approved for a loan by a financial institution. For-Lease vs. For-Sale Projects For-Lease: Objective is to lease to third party tenants for an amount higher than the operating expense and associated debt payments Traditional loan amortization lengths (20-25 years) Reversion: sale of the property at the end of the holding period. For-Sale: Objective is to build and sell the units, pay back the lender, and generate a profit as quickly as possible Much shorter loan amortization lengths (3-7 years) For-Lease vs. For-Sale Projects Pathways to Profit in For-Sale Investments For-Lease vs. For-Sale Projects Discounted Sellout Model For-Lease vs. For-Sale Projects Discounted Sellout over Four Months Skyscraper’s Curse Tallest Skyscraper’s Throughout History Skyscraper’s Curse Skyscraper Curse Through History The Case of the Discounted Sellout Expected Sales and Leasing The Case of the Discounted Sellout Expected Operating Performance of Leased Units (in dollars) The Case of the Discounted Sellout Discounted Sellout Model for Workout Condo Project Chapter 8 Questions Questions for Discussion Discuss the various for-sale investment property paradigms while noting the strengths and weaknesses of the various pathways. Explain the difference between the appreciation reversion and the terminal cap rate reversion. Outline how the lack of a reversionary cash flow in the for-sale investment property valuation model can bring increased uncertainty and increased valuations ranges. Compare and contrast the discounted sellout valuation model with the discounted cash flow valuation model. Identify the root cause of the skyscraper’s curse and what it says about the economic cycle. Chapter 8 Questions Questions for Discussion Provide examples how the skyscraper’s curse impacts other areas of the