Real Estate Fundamentals

Real Estate Fundamentals Using Applied Excel

Key Fundamental Real Estate Topics:

• Provide an overview of commercial real estate as an alternative asset class and how it is viewed in the context of investment management
• Discuss CRE fundamentals including occupancy/vacancy, absorption, rent rolls, stacking plans, property taxes/insurance, physical space utilization, etc.
• Introduce and calculate the fundamental elements of a property cash flow statement
• Provide an overview of lease types (triple net, full-service gross, base year stop lease) and calculate rents based on leasable square footage.

Key Excel Skills:

• Develop diverse date capabilities including an understanding of serial dates, EOMONTH, TODAY, YEAR, ROUNDUP and Fill Series
• Introduce popular text functions to clean, aggregate and disaggregate real estate data including LEFT, RIGHT, MID, and FIND
• Build and differentiate INDEX, OFFSET, MATCH and LOOKUP functions
• Analyze real estate data using SUMIF, COUNTIF, and Nested IF functions
• Introduce the SUMPRODUCT function and review advanced versions needed to perform conditional and categorical analysis (e.g., location, property type, etc.)
• Integrate TEXT functions and introduce more complex, multiple-output data tables (e.g., blending a multiple and a cap rate in the same output).
• Introduce Excel waterfalls (“bridges”) to highlight key financial outputs
• Complete XY Scatter charts to explore cap rate valuations based on multiple series categorical variables (e.g., location or property type)

Real Estate Acquisition Financial Modeling 

Key CRE Financial Modeling Topics:

• Brief review of financial modeling Excel Best Practices including shortcut keys, formula construction, design, format, and formula auditing
• Compare and contrast different property types, their property cash flow characteristics, and review approximate cap rates
• Model gross and effective net revenue based on high-level growth assumptions and vacancy rates
• Build sources and uses of funds in the acquisition model for two different deal types: ‘Core+’ and ‘Value Add’ acquisitions
• Calculate purchase price and indicative cap rates including adjustments to NOI, the basis of the investment and corresponding effective cap rates (e.g., all-in vs. purchase price)
• Project leasing and capital costs (e.g., Tis, LCs and capex demands) with an emphasis on arriving at levered free cash flow
• Evaluate the nature of each deal type, business plan and future investment requirements
• Calculate IRRs and multiple time periods—both levered and unlevered
• Calculate NOI yield and cash-on-cash yields throughout the expected holding period and create summary output
• Calculate real estate-specific data tables including returning multiple outputs in the same data table (e.g., NOI multiple/cap rate)
• Introduce the concept of ‘front-loaded’ capex (e.g., through sources and uses) versus CapEx invested over time (via the cash flow statement) and implications for IRR calcs
• Summarize the output of the two deal types using self-referencing IF statements and compare-and-contrast different risk/reward parameters