FINC 475 - REIT COMPANIES SUMMARY

Pebble Brook Hotel Trust This REIT was created in 2009, and specializes in investing in Retail properties. In particular, the REIT specializes in up-scale, luxury hotels, predominately located in "Gateway" cities. Pebble Brook Hotel Trust currently owns 25 properties in the USA. Their CEO was from Jones Lang Le Salle, which is a real estate firm based in Houston. As far as financials go,they have a low debt structure, and are known to acquire properties at a 35% discount. Hines Global REIT The Hines company began in 1957. They recently opened a new branch to their company that handles the REIT, which started in 2009. This company is responsible for much of the beloved Houston skyline. The company is public, but not traded in public markets. The company is responsible for 800 properties, which it manages with excellence. They are currently in the fundraising state of the REIT process, and will start investing in properties once they have raised $3.5 billion. If one wants to invest in this REIT, the minimum investment is %$2,500 and claims it will get a 6.5% annual return on the investment. The REIT will specialize in office space, and will sell all properties in 2019, hoping to have increased their value to return maximum profit to investors. American Campus Communities This REIT specializes in student housing communities. The company is known to make deals with universities to create on-campus dormitories, and is also known to invest in off-campus housing. American Campus Communities specializes in up-scale student living. Some examples of their investment in the local arena are Callaway house and villas, and Aggie Station. Because the company's niche is high end student living, the project size must be over $10 million or it is not worth the time or investment. Taubman This REIT specializes in high-end shopping centers or malls. The company is known for it's luxurious retail environments. The company became public in 1992. They are known for their excellent management team and their savvy acquisitions. The average property they own is 23 years old. Their malls have the highest average sales productivity in the nation. The REIT's stock price is currently valued at $78 a share, which is very impressive. Public Storage REIT Public storage is one of the largest members of it's industry. The REIT owns and operates over 2,000 different storage facilities all over the United States. The company opened it's first storage facility in 1972. The investment strategy of the firm is very interesting. Instead of opening new facilities that would take away market share from existing facilities, their strategy is to acquire storage facilities from other companies. SL Green This REIT specializes in office space. Their investments are highly populated in the New York area. It was created in 1980, and the REIT went public in 1997. They are known for their expansive market in the Manhattan area. The company owns interest in 77 properties in the Manhattan area. The company manages all of the properties it acquires. One of their most impressive properties is the building on 1515 Broadway. MY GROUP WAS SIMON

FINC 371 Project

Executive Summary: A Montessori school offers a unique learning experience and appealing to families with young children. In this growing affluent area 27 miles north of Houston, it will surely be a very profitable real estate investment. Real Estate in The Woodlands is and has been on a trend of growth and prosperity. The financial analysis of this investment has proven that it is a sound investment. The report that follows will prove this point to you. Company profile: Montessori education emphasizes “independence, freedom within limits, and respect for a child’s psychological development” started by Italian doctor and education Maria Montessori. Each of the instructors is trained at a special facility known as Montessori Accreditation Council for Teacher Education. It breaks free of traditional practices of education creating a unique learning experience for each student. Additionally, it has a corporate gaurantee from La Petite Academy, Inc. a Deleware Corp. Market Analysis: The Woodlands area is affluent suburban area targeting families. Although the location of the daycare facility is in an older part of the area, the cost reflects its age. In addition, the location is extremely central and easily accessible from neighboring towns because of it’s proximity to I-45. However, the target market is a well off family with young children and the immediately surrounding area is consistent with the target market. Additionally, the area is growing making a growing need for daycares. Average income within a mile radious is over $106, 000. Typically, the values of Montessori schools focus on hands on learning and uphold a well respected reputation. We will have four instructors paid $14,500/year and one director paid $20,000/year. We anticipate to have approximately thirty students. The purchase price is $1,363,529. One example of a sales comp was in Tomball, TX where another daycare facility sold for between $1,000,000-1,500,000 and had 13,708 available square feet. -Pictures/information about comparable properties -rental rates, occupancy, amenities, rent abatements (free rent for 1 month? Inventory/vacancy rate for property type -Supply/Demand Competition -SWOT Analysis-Property’s Strengths, Weaknesses, Opportunities, and Threats Property Description: The property is 5,964 square feet and goes for $228.63 per square foot. Signage is limited in this area due to restrictions by The Woodlands Association in attempts to maintain a certain asthetic in the area. It is accessible from a driveway from Many Pines Road and is not visible from the road because of a barrier of trees. Financial Analysis This section will tell reveal to you the financial details and analysis of Montessori Unlimited. This will allow you to make the most educated decision as to whether the investment is ideal for you. First off I would like to state and explain some of the assumptions and values that were used in the calculations. The going in cap rate was listed on the property as 8.5%. As for expenses, comparable daycares were looked at to get a good estimate of the operating expenses we expect to be incurred. To find the growth rate of potential growth income, we looked at a national forecast of similar retail environments. We did the same to come up with the growth rate for operating expenses. We also researched local property taxes to come up with a solid figure, the property tax came out to be around $27,000. This is a large amount, but is made up for by Texas’ policy of not having income tax. Thus, in the calculations to find after-tax cash flow, we used sales tax instead of income tax. The sales tax in The Woodlands is around 9.8% of the sale of products or services. The last assumption we made by looking at historical trends was to come up with a terminal cap rate, which we estimated to be just slightly lower than the going in cap rate at 8.2%. Upon doing research, we felt safe with a loan to value of 75%. Looking at the history of banking with small businesses in the area, we assumed the loan would come at a 7.5% interest rate. The first calculation that will give insight into the profitability of this investment is the unleveraged NPV, which is the net present value if there was no debt financing involved. The table above is used to find the unleveraged NPV. This is found by having an initial investment of $1,363,529, and using the NOI for each year as a cash flow. Also, in year 10 we add in the selling value of the property which is calculated by dividing year 11’s NOI by the terminal cap rate. This number is $2,352,850.85. It is also important to note that we used a required of return of 6.47%, which is the average cost of capital for educational services. The NPV= $931,68206 We use the same numbers and process for the unleveraged IRR IRR=14.03% The leveraged NPV and IRR take into account debt financing. In this case, the initial investment is the amount of equity you have to invest. In this case, the LTV was .75 so the investor must invest .25 the purchase price in equity. This value is 340882.25. The after tax cash flows are the yearly cash flows used for this calculation. The year 10 cash flow gets the selling price minus the carrying value on the loan added to it. This value is $1,664,289.74. The leveraged NPV is $810,915.41 The leveraged IRR is 21.81 If you have the capital to be able to buy the property out-right, then that is the most profitable choice as it results in the higher NPV. But, by leveraging you don’t take on as much risk and you have a higher IRR. A vital factor that is playing into these values being so positive is the low cost of capital in the industry which results in a low required rate of return. My advice pertaining to this property is that it is a good investment. It is in a blossoming part of Texas where real estate is growing very fast. In fact, investing in this property for the land alone would not be the worst idea. The Woodlands is quickly becoming a luxury destination and has residents with high average incomes. This is good for any business in the retail sector. To conclude, the Montessori Unlimited daycare is a profitable investment and is worth looking into.

FINC 371 Real Estate Financing

The two most common loans in real estate are the fixed rate mortgage and the adjustable-rate mortgage. A hybrid loan is a combination of both. There are also reverse mortgage loans, and loans that use a different term for the amortization as the loan term. Often time people want to have the term of the loan coincide with the time they want to hold the property, but this is not always the case. For mortgages, a common example of a loan term is around 30 years. There are many sources of capital for real estate. This can come in the form of equity or debt. For example, a REIT that is public will sell shares of it's stock to get capital for real estate. There are many ways to "Creatively" finance your real estate firm. I believe that a firm should be highly levered, meaning it should favor debt over equity, because interest is tax-deductible. Firms can also offer subsidized housing to lesser off families to receive tax credits.

FINC 371 Overview of Real Estate Finance

Real estate finance is essential in real estate investments because many times one needs a loan to acquire a property. Major employers in this arena include commercial banks, and regular banks, who give out loans to people who choose to use debt financing to acquire a property. Another employer in real estate finance is appraisal firms. Jobs in real estate finance include brokerage, real estate appraisal, mortgage banking, and title insurance. Some trade organizations in real estate are the American Land Title Association, the Building Owners and Management Association, and Mortgage Bankers Association of America. Real Estate financial markets have been on an increase since the housing downturn in the 2000's. http://finance.yahoo.com/news/everybody-says-downsize-everybody-may-213800235.html This article contends with the idea that downsizing to create a cash inflow can be the wrong idea. It claims that selling your house to beef up retirement accounts can be a bad decision because of the state of the market. It also says that your property can gain significantly in value, thus you will be losing money.

FINC 371 Overview of a Real Estate Appraisal

An appraisal is a document that approximates the value of something. In this case, that  something would be a real estate property. Appraisals take into account  many things, such as the value of the land and the expected revenue that comes from the property. Appraisals aim to get as close as possible to the marker value of the property. Appraisals are perceived as an opinion. You may agree or disagree with an appraisal. A bad appraisal would be one that you don't agree with the value that the appraiser assigns to the value. There are many types of appraisals. Sometimes they are done to evaluate an estate for a will. Sometimes appraisals are used by banks when a house is foreclosed on. The government also uses appraisals for tax purposes. With the influx of information available to the public, I believe appraisals will decline, as people will attempt to do their own appraisal.

The appraisal is also very important for your loan. As this article shows, an appraisal that is too low can mess up your valuation which can cause you to not get your mortgage loan. This is due to the fact that some banks use a loan to value calculation when deciding to give a mortgage or not. I believe in cases like this appraisers should lean to a higher value than lower when making a tough decision. This is a similar article which contends with appraisals that are on the low side. In this article it is the realtors who are complaining about the appraisals. Low appraisals are bad for realtors in that it effects their customers getting loans and it effects their sales price.

FINC 371 Overview of a real estate appraiser

Being a real estate appraiser sounds like an enjoyable job where you get to use your analytical and social skills. The first step in becoming an appraiser is getting a trainee license. The next few stages you don't make much money, but it is wise to find a job where you will have someone to show you the ropes and help you network. Last, you must get a real estate license, and you will be ready to appraise on your own after you become a certified appraiser. Right now there is high competition for real estate appraisers, the demand is not quite as high as the supply.

This article explains the pay, and the day to day activities of a real estate appraiser. On average, they make around 50K a year. The main day to day activity of an appraiser is appraising. Which means they go out to properties and provide estimates for clients. These can be used for a variety of reasons

One example of a major real estate appraisal firm is The Scott Appraisal Company. This specific company works in central California. They appraise any real estate from industrial to residential. An interesting fact that I saw on the website was their court experience. This leads me to believe that sometimes their appraisals are so serious they are used in a court of law.

FINC 371 Property Rights and Legal Descriptions (Due 9/16)

Property Rights deals with the rights to ownership of land, objects, and natural resources. An example of a property right would be if there is oil on your land. The details of your housing situation and the contract/lease you signed would provide more insight as to the ownership of the oil. Another example of property rights is who the fixtures inside a renting home belong to. Details such as if the fixture is permanently connected to the household would be looked at to determine the property rights. Another issue is if you live in a condo or town house, and there is a plot of land in the backyard. The property rights will determine if you own any of that land or you share it with the other tenants.

http://www.washingtonpost.com/wp-dyn/articles/A58185-2005Feb27.html
This article contends with a property right dispute in Oregon. Some Oregon land owners feel they should be compensated by the government because their anti-sprawl and land use restrictions have decreased the value of their land. In fact, there is a property right law that says the government should indeed compensate these people. In my opinion I don't think the government should have to compensate people for trying to protect the wildlife of Oregon.

Real Estate much have a legal description for the land that it is on. There are three methods to determine the legal description: metes-and-bounds, rectangular survey, and recorded plats. The legal descriptions fall into two categories, either platted or unplatted.  This article provides examples and the methods to come up with the legal descriptions.Examples of a platted development are subdivisions and condos. Unplatted refers to all the land that does not have a legal designation, and it is all about location and dimension. Unplatted descriptions usually take the form of metes-and-bounds.