Real Estate Finance & Investments

Description

ISBN 9781264892884 is an International edition of Real Estate Finance & Investments 17th Edition By William B. Brueggeman, Jeffrey Fisher. This is student textbook only. It doesn't come with online access code. Access code, if required by an instructor, sold separately at another ISBN. The content of international edition is the same as other formats. Real Estate Finance & Investments prepares readers to understand the risks and rewards of financing and investing in residential and commercial real estate. Concepts and techniques included in the chapters and problem sets are used in many careers related to real estate. These include investing, development financing, appraising, consulting, managing real estate portfolios, leasing, managing property, analyzing site locations, corporate real estate, and managing real estate investment funds. This material is also relevant to individuals who want to understand real estate better when making their own personal investment and financing decisions. As this current edition is being revised, there is a lot of uncertainty about the impact that COVID-19 will have on different sectors of the commercial real estate market. It is more important than ever to evaluate the risk and return for both lenders and investors. This text is designed to help both students and other readers understand these many factors so that they can perform the necessary analysis and make informed real estate finance and investment decisions. Cover Real Estate Finance and Investments Preface Acknowledgments Brief Contents Table of Contents Part One: Overview of Real Estate Finance and Investments Chapter 1: Real Estate Investment: Basic Legal Concepts Property Rights and Estates Definition of Estate Two General Classifications of Estates Examples of Freehold Estates Estates Not Yet in Possession (Future Estates) Examples of Leasehold Estates Interests, Encumbrances, and Easements Assurance of Title The Meaning of Title Deeds Methods of Title Assurance Abstract and Opinion Method The Title Insurance Method Recording Acts Limitations on Property Rights Chapter 2: Real Estate Financing: Notes and Mortgages Notes The Mortgage Instrument Definition of a Mortgage Relationship of Note to Mortgage Interests That Can Be Mortgaged Minimum Mortgage Requirements Important Mortgage Covenants Assumption of Mortgage Acquiring Title “Subject to” a Mortgage Property Covered by a Mortgage Junior Mortgages Recording of Mortgages Other Financing Sources Seller Financing Land Contracts Default What Constitutes Default? Alternatives to Foreclosure: Workouts Restructuring the Mortgage Loan Transfer of Mortgage to a New Owner Voluntary Conveyance Friendly Foreclosure Prepackaged Bankruptcy Short Sale Foreclosure Judicial Foreclosure Redemption Sales of Property Effect of Foreclosure on Junior Lienors Deficiency Judgment Taxes in Default Bankruptcy Chapter 7 Liquidation Chapter 11 Chapter 13 Part Two: Mortgage Loans Chapter 3: Mortgage Loan Foundations: The Time Value of Money Compound Interest Compound or Future Value Calculating Compound Interest Factors Using Financial Functions: Calculators and Spreadsheets Present Value A Graphic Illustration of Present Value Expanding the Use of Calculators for Finding Present Values Compound or Future Value of an Annuity Use of Compound Interest Factors for Annuities Present Value of an Annuity Use of the Present Value of an Annuity Factors Accumulation of a Future Sum Determining Yields, or Internal Rates of Return, on Investments Investments with Single Receipts Yields on Investment Annuities Equivalent Nominal Annual Rate (ENAR): Extensions Solving for Annual Yields with Partial Periods: An Extension Chapter 4: Fixed Interest Rate Mortgage Loans Determinants of Mortgage Interest Rates: A Brief Overview The Real Rate of Interest: Underlying Considerations Interest Rates and Inflation Expectations Interest Rates and Risk A Summary of Factors Important in Mortgage Loan Pricing Understanding Fixed Interest Rate Mortgage (FRM) Loan Terms Calculating Payments and Loan Balances—Fixed Interest Rate Loans The Importance of Accrued Interest and Loan Payments Loan Amortization Patterns Fully Amortizing, Constant Payment Mortgage (CPM) Loans Partially Amortizing, Constant Payment Mortgage (CPM) Loans Zero Amortizing, or Interest-Only—Constant Payment Mortgage (CPM) Loans Negative Amortizing, Constant Payment Mortgage (CPM) Loans Summary and Comparisons: Fixed Interest Rate, Constant Payment Mortgage (CPM) Loans with Various Amortization Patterns Determining Loan Balances Finding Loan Balances—Other Amortization Patterns Loan Closing Costs and Effective Borrowing Costs Loan Fees and Early Repayment: Fully Amortizing Loans Charging Fees to Achieve Yield, or When “Pricing” FRMs Financing Loan Fees and Other Closing Costs Other FRM Loan Patterns—Declining Payments and Constant Amortization Rates Amortization Schedules and Callable Loans “Reverse Mortgages” Appendix Inflation, Mortgage Pricing, and Payment Structuring Chapter 5: Adjustable and Floating Rate Mortgage Loans The Price Level Adjusted Mortgage (PLAM) PLAM: Payment Mechanics ARMs and Floating Rate Loans: An Overview Variations: ARM and Floating Rate Loans Risk Premiums, Interest Rate Risk, and Default Risk Expected Yield Relationships and Interest Rate Risk More Complex Features ARM Payment Mechanics Chapter 6: Mortgages: Additional Concepts, Analysis, and Applications Incremental Borrowing Cost Early Repayment Origination Fees Incremental Borrowing Cost versus a Second Mortgage Relationship between the Incremental Cost and the Loan-to-Value Ratio Differences in Maturities Loan Refinancing Early Repayment: Loan Refinancing Effective Cost of Refinancing Borrowing the Refinancing Costs Other Considerations Early Loan Repayment: Lender Inducements Market Value of a Loan Effective Cost of Two or More Loans Second Mortgages and Shorter Maturities Effect of Below-Market Financing on Property Prices Assuming a Lower Loan Balance Cash Equivalency Cash Equivalency: Smaller Loan Balance Cash Equivalency: Concluding Comments Wraparound Loans Buydown Loans Appendix After-Tax Effective Interest Rate Part Three: Residential Housing Chapter 7: Single-Family Housing: Pricing, Investment, and Tax Considerations Overview House Prices Income and Employment Renting versus Owning Analyzing Expected House Prices Economic Base Analysis—Location Quotients Housing Supply: An Overview Submarkets: Neighborhoods/Municipalities Capitalization Effects: Price Premiums Pricing Property in Specific Submarkets/Locations Investing in “Distressed Properties” Financial Framework for Analyzing Distressed Properties Acquisition Phase Holding Period Phase Disposition Phase—Exit Strategies Chapter 8: Underwriting and Financing Residential Properties Underwriting Default Risk Classification of Mortgage Loans Conventional Mortgage Loans Insured Conventional Mortgage Loans FHA-Insured Mortgage Loans VA-Guaranteed Mortgage Loans The Underwriting Process Borrower Income Verification of Borrower Assets Assessment of Credit History Estimated Housing Expense Other Obligations Compensating Factors The Underwriting Process Illustrated Underwriting Standards—Conventional and Insured Conventional Mortgages Underwriting Standards—FHA-Insured Mortgages Underwriting Standards—VA-Guaranteed Mortgages Underwriting and Loan Amounts—A Summary The Closing Process Fees and Expenses Prorations, Escrow Costs, and Payments to Third Parties Statutory Costs Requirements under the Real Estate Settlement and Procedures Act (RESPA) Settlement Costs Illustrated Federal Truth-in-Lending (FTL) Requirements Truth-in-Lending Sample Disclosure Establishing the APR under Federal Truth-in-Lending Requirements ARMs and Truth-in-Lending Disclosure Part Four: Income-Producing Properties Chapter 9: Income-Producing Properties: Leases, Rents, and the Market for Space Property Types Supply and Demand Analysis Local Market Studies of Supply and Demand Location and User-Tenants The Business of Real Estate The “Market” for Income-Producing Real Estate Income Potential—Real Estate Assets Vacancy Underwriting Tenants General Contents of Leases Leases and Rental Income Leases and Responsibility for Expenses (Recoveries) Comparing Leases: Effective Rent Other Financial Considerations Developing Statements of Operating Cash Flow Case Example: Office Properties Rent Premiums and Discounts for Office Space Pro Forma Statement of Cash Flow—Office Properties Case Example: Industrial and Warehouse Properties Pro Forma Statement of Cash Flow—Industrial/Warehouse Properties Case Example: Retail Properties The Retail Leasing Environment CAM Charges—Recoveries Pro Forma Statement of Cash Flow—Retail Properties Case Example: Apartment Properties Chapter 10: Valuation of Income Properties: Appraisal and the Market for Capital Introduction Valuation Fundamentals Appraisal Process and Approaches to Valuation Sales Comparison Approach Income Approach Capitalization Rate Capitalization Rates—A Note of Caution Discounted Cash Flow Techniques Land Values: Highest and Best Use Analysis Volatility in Land Prices “Highest and Best Use” Analysis—Vacant Site “Highest and Best Use” Analysis—Improved Property Mortgage-Equity Capitalization Reconciliation: Sales Comparison and Income Capitalization Approaches Exploring the Relationships between Changing Market Conditions, Cap Rates, and Property Values A Closing Note on Cap Rates and Market Conditions A Word of Caution—Simultaneous Effects of Real Market Forces and Interest Rates on Property Values Leases: Valuation of a Leased Fee Estate Cost Approach Valuation Case Study—Oakwood Apartments RealNex Solution Appendix RealNex Inputs and Output for Apartment Analysis Chapter 11: Investment Analysis and Taxation of Income Properties Motivations for Investing Real Estate Market Characteristics and Investment Strategies The Real Estate Cycle Investment Strategies Market Analysis Supply of Space Market Rents Forecasting Supply, Demand, Market Rents, and Occupancy Making Investments: Projecting Cash Flows Office Building Example Base Rent Market Rent Expense Stops Net Operating Income Expected Outlays for Replacements and Capital Improvements Estimated Sale Price Introduction to Investment Analysis Internal Rate of Return (IRR) Present Value Introduction to Debt Financing Measures of Investment Performance Using Ratios Before-Tax Cash Flow from Sale Summary of Investment Analysis Calculations Taxation of Income-Producing Real Estate Taxable Income from Operation of Real Estate Depreciation Allowances Loan Points Tax Liability and After-Tax Cash Flow Taxable Income from Disposal of Depreciable Real Property After-Tax Investment Analysis After-Tax Cash Flow from Operations After-Tax Cash Flow from Sale After-Tax IRR Effective Tax Rate A Note about Passive Losses Special Exceptions to PAL Rules Appendix A Approaches to Metro Area Market Forecasting: Appendix B RealNex Office Example Chapter 12: Financial Leverage and Financing Alternatives Introduction to Financial Leverage Conditions for Positive Leverage—Before Tax Conditions for Positive Leverage—After Tax Break-Even Interest Rate Risk and Leverage Underwriting Loans on Income Properties Market Study and Appraisal Borrower Financials The Loan-to-Value Ratio The Debt Coverage Ratio Other Loan Terms and Mortgage Covenants Alternatives to Fixed Rate Loan Structures Participation Loans Lender Motivations Investor Motivations Participation Example Sale-Leaseback of the Land Effective Cost of the Sale-Leaseback Interest-Only Loans Accrual Loans Structuring the Payment for a Target Debt Coverage Ratio Convertible Mortgages Lender’s Yield on Convertible Mortgages Comparison of Financing Alternatives Other Financing Alternatives Chapter 13: Risk Analysis Introduction Comparing Investment Returns Types of Risk Due Diligence in Real Estate Investment Risk Analysis Sensitivity Analysis Partitioning the IRR Variation in Returns and Risk Retail Case Study—Westgate Shopping Center Westgate Shopping Center Scenario Analysis Lease Rollover Risk Market Leasing Assumptions with Renewal Probabilities Market Rent Months Vacant Leasing Commissions Tenant Improvements Industrial Case Study—Worthington Distribution Center Risk and Leverage Monte Carlo Simulation Example Extensions of Monte Carlo Simulation Participation Example A “Real Options” Approach to Investment Decisions Traditional Approach to Land Valuation Real Option Approach to Land Valuation Real Options Extensions and Strategy Chapter 14: Disposition and Renovation of Income Properties Disposition Decisions A Decision Rule for Property Disposition IRR for Holding versus Sale of the Property Return to a New Investor Marginal Rate of Return Refinancing as an Alternative to Disposition Incremental Cost of Refinancing Leveraged Return from Refinancing and Holding an Additional Five Years Refinancing at a Lower Interest Rate Other Disposition Considerations—Portfolio Balancing Tax-Deferral Strategies upon Disposition Installment Sales Tax-Deferred Exchanges Renovation as an Alternative to Disposition Renovation and Refinancing Rehabilitation Investment Tax Credits Low-Income Housing Chapter 15: Financing Corporate Real Estate Lease-versus-Own Analysis Leasing versus Owning—An Example Cash Flow from Leasing Cash Flow from Owning Cash Flow from Owning versus Leasing Return from Owning versus Leasing Importance of the Residual Value of Real Estate The Investor’s Perspective A Note on Project Financing Factors Affecting Own-versus-Lease Decisions Impact on Lessee Financial Reporting Impact of Lease on Income Statement and Balance Sheet The Role of Real Estate in Corporate Restructuring Sale–Leaseback Refinancing Investing in Real Estate for Diversification Appendix Real Estate Asset Pricing and Capital Budgeting Analysis: A Synthesis Part Five: Financing Real Estate Development Chapter 16: Financing Project Development Introduction Overview: The Planning and Permitting Process The Development of Income-Producing Property Market Risks and Project Feasibility Project Risks Project Development Financing—An Overview Lender Requirements in Financing Project Development Interest Rates and Fees Project Development Illustrated Project Description and Project Costs Market Data and Tenant Mix Pro Forma Construction Costs and Cash Flow Projections Feasibility, Profitability, and Risk—Additional Issues Profitability Before and After Taxes Sensitivity Analysis, Risk, and Feasibility Analysis Chapter 17: Financing Land Development Projects Characterization of the Land Development Business The Land Development Process—An Overview Acquisition of Land—Use of the Option Contract Financing and Development Lender Requirements in Financing Land Development Detailed Cost Breakdowns General Contracts and Subcontracts Residential Land Development Illustrated Market Conditions and Site Plan Estimating Development Cost and Interest Carry Estimating Release Prices per Parcel Sold Loan Request and Repayment Schedule Project Feasibility and Profitability Project IRR and Net Present Value Entrepreneurial Profits Sensitivity Analysis Part Six: Alternative Real Estate Financing And Investment Vehicles Chapter 18: Structuring Real Estate Investments: Organizational Forms and Joint Ventures Introduction Sole Proprietorships Partnerships Limited Liability Companies Corporations Joint Ventures Organizational Forms Profit Sharing Initial Capital Contributions Sharing Cash Flow from Operations Sharing of Cash Flow from Sale Summary of Cash Flows Distributed in Each Operating Year Cash Flow from Sale IRR to Each Joint Venture Party Variation on the Preferred IRR—“The Lookback IRR” Syndications Use of the Limited Partnership in Private and Public Syndicates Private Syndication Problem Illustrated Financial Considerations—Partnership Agreement Operating Projections Statement of Before-Tax Cash Flow (BTCF) Calculation of Net Income or Loss Calculation of Capital Gain from Sale Capital Accounts Distribution of Cash from Sale of Asset Calculation of After-Tax Cash Flow and ATIRR on Equity Partnership Allocations and Substantial Economic Effect Capital Accounts and Gain Charge-Backs Use of the Limited Partnership in Private and Public Syndicates Use of Corporate General Partners Private versus Public Syndicates Accredited Investors—Regulation D Regulation of Syndicates Investment Objectives and Policies Promoters’ and Managers’ Compensation Investor Suitability Standards Federal and State Securities Authorities Chapter 19: The Secondary Mortgage Market:Pass-Through Securities Introduction Evolution of the Secondary Mortgage Market Early Buyers of Mortgage Loans The Secondary Market FNMA’s Changing Role The Government National Mortgage Association Mortgage-Backed Securities and the GNMA Payment Guarantee The Federal Home Loan Mortgage Corporation Operation of the Secondary Mortgage Market Direct Sale Programs The Development of Mortgage-Related Security Pools Mortgage-Backed Bonds Pricing Mortgage-Backed Bonds Subsequent Prices Mortgage Pass-Through Securities Important Characteristics of Mortgage Pools Mortgage Pass-Through Securities: A General Approach to Pricing Mortgage Pass-Through Payment Mechanics Illustrated Prepayment Patterns and Security Prices Prepayment Assumptions The Effects of Prepayment Illustrated Security Prices and Expected Yields Market Interest Rates and Price Behavior on Mortgage Pass-Throughs A Note on MBBs and MPTs Chapter 20: The Secondary Mortgage Market: CMOs, CDOs, CLOs, and Derivative Securities Introduction Mortgage Pay-Through Bonds (MPTBs) Collateralized Mortgage Obligations CMOs Illustrated CMO Mechanics CMOs: Pricing and Expected Maturities CMO Price Behavior and Prepayment Rates CMO Tranche Variations Subprime Mortgage-Backed Securities Derivatives Illustrated Yield Enhancement IO and PO Strips Convexity Residential Mortgage-Related Securities: A Summary Residential Mortgage-Related Securities: Some Closing Observations Commercial Mortgage-Backed Securities (CMBSs) Rating Commercial Mortgage-Backed Securities Collateralized Debt Obligations (CDOs) Collateralized Loan Obligations (CLOs) Mortgage-Related Securities and REMICs REMICs: Other Considerations Appendix Duration—An Additional Consideration in Yield Measurement Chapter 21: Real Estate Investment Trusts (REITs) Introduction Legal Requirements Tax Treatment Violation Penalties and Status Termination Taxable REIT Subsidiaries TYPES of REITs Equity REITs The Investment Appeal of Equity REITs Public Nonlisted REITs Importance of FFO (Funds from Operations) REIT Expansion and Growth Important Issues in Accounting and Financial Disclosure: Equity REITs Tenant Improvements and Free Rents: Effects on FFO Leasing Commissions and Related Costs Use of Straight-Line Rents FFO and Income from Managing Other Properties Types of Mortgage Debt and Other Obligations Existence of Ground Leases Lease Renewal Options and REIT Rent Growth Occupancy Numbers: Leased Space or Occupied Space? Retail REITs and Sales per Square Foot Additional Costs of Being a Public Company The Investment Appeal of Mortgage REITs Financial Analysis of an Equity REIT Illustrated Valuing REITs as Investments Valuation of Midwestern America Property Trust Part Seven: Portfolio Analysis and Real Estate Funds Chapter 22: Real Estate Investment Performance and Portfolio Considerations Introduction The Four Quadrants of Real Estate Investment Sources of Data Used for Real Estate Performance Measurement REIT Data: Security Prices Hybrid and Mortgage REITs NCREIF Property and Fund Indices Data Sources for Other Investments Computing Holding Period Return Comparing Investment Returns Risk-Adjusted Returns: Basic Elements Elements of Portfolio Theory Calculating Portfolio Returns Portfolio Risk Risk and Return for Portfolios with Different Weights Importance of Correlation Three Asset Class Portfolios Multi-Asset Portfolios Systematic versus Unsystematic Risk Adding REITs to the Portfolio Global Diversification Use of Derivatives to Hedge Portfolio Risk Beta and the Capital Asset Pricing Model (CAPM) Chapter 23: Real Estate Funds: Structure, Performance, Benchmarking, Risk and Attribution Analysis Investor Goals and Objectives General Explanation of Possible Provisions in Fund Offerings Reporting Fund Performance Measuring and Reporting Investment Returns Summary of Major Activity during Quarter: Calculating Returns Calculating Returns at the Property Level Returns: Before and After Fees Comparing Returns: Fund Level versus Property Level Calculating Historical Returns Time-Weighted Returns Investor’s Return versus Fund Return Choosing IRR versus TWR for Performance Measurement Target Returns and Benchmarks Investment Multiple Attribution Analysis Attribution Analysis Mathematics Interpreting Sector Allocation Evaluating Risk Differences Jensen’s Alpha Risk-Adjusted Attribution Analysis Index