RE Technical Prep

How do you calculate Cash-on-Cash Return?

- Cash-on-Cash return compares a real estate investment properties annual pre-tax cash flow to the initial equity contribution - Cash-on-Cash Return = Annual Pre-Tax Cash Flow / Equity Invested

How do you caclulate cash-on-cash returns

- Cash-on-cash return compares a real estate investment properties annual pre-tax cash flow to the initial investment

Based on research and Harrison Street's investment strategy, what would you invest in

- Did some research and was very interested on the data centers in your portfolio - Found this to be a great investment since we've seen a recent boom in data-driven technology such as AI - Tech companies will need locations to store all of this data - Recognize it is a risky investment and is very expensive, but with that risk comes a high return - I would invest somewhere with a strong positive migration pattern such as Pheonix AZ

What would you invest in based on of Harrison Street's investment strategy

- Did some research on your investment strategy and found data centers to be very interesting - Seeing a huge boom in data-driven technologies such as AI - Tech companies will continue to need data centers to store all of this information - Is a risky investment and very expensive, but I am confident it will generate high returns - Would choose a location with established data centers and a positive migration pattern - Phionex AZ

What is the difference between EGI and NOI?

- EGI is the maximum amount of market rent your building can generate and other revenue (GPI) subtracting vacancy loss and credit loss - NOI is the remaining income from EGI minus operating expenses - Neither include CapEx

What is the Cap Rate?

- Estimates the returns that a real estate investor expects to earn on a propety investment - Ratio between the properties NOI and it's current market value - Cap Rate = NOI / Current Market Valye - Higher Cap Rate = Higher Risk - Lower Cap Rate = Lower Risk

What projects has Harrison Street been involved in

- Harrison Street recently celebrated the grand opening of "VERVE MADISON" a 12-story university housing development with Subtext and ESG - Harrison Street parntered with Greystar Real Estate Partners to develop 344 unit student housing at the University of Kentucky - Harrison Street recently acquired 5 senior living communities from Brightview Senior Living across the east coast

Cost Approach

- How much would it cost to develop an identical building? - Only method in which comparable properties are not part of the valuation

What is the Operating Expense Ratio?

- Measures the percentage of a property investment's gross income allocated to pay off it's expenses - OEP = Total OpEx / Gross Operating Income

How is the Debt Yield Calculated?

- Measures the risk associated with a loan based on the estimated return - Debt Yield = NOI / Total Loan Amount

What is the Loan-to-Value Ratio?

- Measures the risk of a real estate lending proposal by comparing the requesting loan amount to the appraised fair value of the property - LTV = Loan Amount / Appraised Property Fair Value

How do you calculate Return-on-Equity

- ROE measures the net profits generated by a company based on the equity invested - Useful tool to gauge a management team's capital allocation decisions - ROE = NOI / Average Total Equity - High ROE = Larger Profits - Low ROE = Small Profits

How do you calculate return-on-equity

- ROE measures the profits generated by a company based off of the equity invested - ROE = Annual NOI / Equity Invested

What is the Gross Rent Multiplier?

- Ratio between the market value of a property and it's expected gross income - GRM = Property Price / EGI - Reflects the estimated number of years needed by a properties gross rental income to pay for itself

What type of properties does Harrison Street invest in?

- Real Estate assets with attractive, steady, and defensible demand drivers - Target demographics include populations that continue to grow and live longer, increased college enrollments, and more mobile populations - Prefers short term leases as they allow rent to re-price more frequently

What is the equity multiple?

- Refers to the ratio between the total cash earned by the investor and the amount of equity they contributed - Equity Multiple = Total Cash Distibutions / Total Equity Contributed

What is NOI?

- Standard metric that investors use to measure the profitability of commercial real estate - Assume full vacancy at the market rent and add other income to get Gross Potential Income - Subtract vacancy and credit loss to get Effective Gross Income - Subtract operating expenses to get to NOI - Does not include CapEx

What is Harrison Street's Investment Strategy

- The Opportunistic Fund Strategy has 33B in gross investments and includes student housing, senior housing, medical office, life sciences, and more - The US Core Strategy includes 16.9B AUM of premier investments with stabilized cash flows - Student housing, senior living, medical office, life science, and more

How is Yield On Cost Calculated?

- The ratio between a properties stabilized NOI and the total project cost - YoC = Stabilized NOI / Total Project Cost

What does Loan-to-Cost Measure?

- Underwriting metric that is the ratio between the loan amount and the total development cost - LTC = Total Loan Amount / Total Development Cost

Sales Comparison Approach

- Use decent sales data to compare the property to others of similar characteristics - Factors such as square footage, location, age, and more are all consistent

Income Approach

- Value is determined by dividing the NOI by the market cap rate - Market cap rate is determining by analyzing the cap rate of comparable properties

Class D Properties

Bottom-tier classification, poor condition, likely the highest risk and reward

What are the different property classes in real estate investing?

Class A Class B Class C Class D

What are the 4 main real estate investment strategies

Core, Core-Plus, Value-Add, Opportunistic

What are the three methods of appraising a property?

Income Approach, Sales Comparison Approach, Cost Approach

Core

Least risky strategy that involves modern properties

Core-Plus

Marginally riskier, needing some capital improvements

Class A Property Type

Premium properties, typically pose the lowest risk and reward

Opportunistic

Riskiest, need new development or redevelopment

Class C Properties

More outdate, need renovation, higher risk, higher reward

Class B Properties

More outdated then class A, still high-quality, higher yields and risk

Value-Add

More risk, need considerable capital improvements