Want a NOOK? Explore Now
The measurement, benchmarking, forecasting and quantitative management techniques applied to property investments are now compatible with those used in other asset classes, and advances in property research have at last put the ongoing debate about the role of real estate onto a footing of solid evidence.
The truly global scope and authorship of this book is unique, and both authors here are singularly well qualified to summarise the impact and likely future of global innovations in property research and fund management. Between them, they have experienced three real estate crashes, and have observed at first hand the creation of the real estate debt and equity instruments that led to the global crisis of 2008-9.
Global Property Investment: strategies, structure, decisions offers a unique perspective of the international real estate investment industry with:
With many cases, problems and solutions presented throughout the book, and a companion website used for deeper analysis and slides presentations (see below), this is a key text for higher-level real estate students on BSc, MSc, MPhil and MBA courses worldwide as well as for practising property professionals worldwide in fund management, investment and asset management, banking and real estate advisory firms.
“This comprehensive guide to international real estate investment provides detailed information on the unique challenges of remote investment in the global marketplace and presents practical advice for successful outcomes.” (Book News, 1 April 2012)
Acknowledgements xv
PART ONE REAL ESTATE AS AN INVESTMENT: AN INTRODUCTION 1
Chapter 1 Real estate – the global asset 3
1.1 The global property investment universe 3
1.2 Market players 6
1.3 Property – its character as an asset class 11
1.4 Conclusions 28
Chapter 2 Global property markets and real estate cycles 32
2.1 Introduction 32
2.2 The United States 34
2.3 The UK property market – a performance history 67
2.4 Continental Europe 80
2.5 Asia 83
2.6 Conclusions 91
Chapter 3 Market fundamentals and rent 94
3.1 Introduction: the global property cycle 94
3.2 The economics of rent 95
3.3 Forecasting rents 109
3.4 Conclusions 116
Chapter 4 Asset pricing, portfolio theory and real estate 117
4.1 Risk, return and portfolio theory 117
4.2 A property appraisal model 124
4.3 The model components 132
4.4 The required return for property assets 140
4.5 Forecasting real estate returns 142
4.6 Conclusions: a simple way to think about real estate returns 151
PART TWO MAKING INVESTMENT DECISIONS AT THE PROPERTY LEVEL 155
Chapter 5 Basic valuation and investment analysis 157
5.1 Introduction 157
5.2 Estimating future cash flows 161
5.3 The discount rate 166
5.4 Conclusions 170
Chapter 6 Leasing 171
6.1 Introduction 171
6.2 Legal characteristics of leases 173
6.3 The leasing process 174
6.4 Important economic elements of a lease 174
6.5 Lease economics and effective rent 192
6.6 Conclusions 199
Chapter 7 Valuing commercial real estate: the unleveraged case 203
7.1 Introduction: the investment opportunity 203
7.2 Developing a pro-forma income statement 206
7.3 Valuation using the cap rate 210
7.4 Valuation using cash flows 212
7.5 Applying discounted cash flow to analyze investment feasibility 219
7.6 Conclusions 221
Chapter 8 Mortgages: an introduction 222
8.1 Introduction 222
8.2 What is a mortgage? 223
8.3 The risks and returns of mortgage investment 225
8.4 The fi nancial components of a mortgage 226
8.5 The mortgage menu 229
8.6 An introduction to mortgage mathematics 231
8.7 Conclusions 247
Chapter 9 Commercial mortgage underwriting and leveraged feasibility analysis 248
9.1 Introduction 248
9.2 The mortgage underwriting process 248
9.3 Investment feasibility with leverage: before-tax analysis 256
9.4 Investment feasibility with leverage: after-tax analysis 263
9.5 Global variations in real estate debt 270
9.6 Conclusions 272
Chapter 10 Valuing the private real estate entity 274
10.1 Introduction: the four quadrants and private equity 274
10.2 Sponsor economics 276
10.3 The life cycle of a private equity fund 277
10.4 Fund economics 279
10.5 Waterfall structures 282
10.6 Private equity structures in the credit crisis 289
10.7 Conclusions 291
PART THREE REAL ESTATE INVESTMENT STRUCTURES 293
Chapter 11 Unlisted real estate funds 295
11.1 Introduction to unlisted real estate funds 295
11.2 The growth of the unlisted real estate fund market 299
11.3 Unlisted fund structures 303
11.4 Characteristics of unlisted real estate funds 307
11.5 Liquidity and valuation issues 310
11.6 The case for and against unlisted real estate funds 312
11.7 Conclusions 317
Chapter 12 Public equity real estate 319
12.1 Introduction 319
12.2 REITs and REOCs 320
12.3 Listed funds and mutual funds 321
12.4 Exchange-traded funds (ETFs) 321
12.5 The US REIT experience 322
12.6 The global market 331
12.7 REIT pricing 335
12.8 Conclusions 339
Chapter 13 Real estate debt markets 340
13.1 Introduction 340
13.2 A brief history lesson 342
13.3 Wall Street Act I: the early residential mortgage-backed securities market 344
13.4 Wall Street Act II: senior-subordinated securities, the advent of structured finance 350
13.5 Wall Street Act III: the evolution of structured finance 356
13.6 Collateralized debt obligations (CDOs) 361
13.7 Summary 363
13.8 Mezzanine debt 364
13.9 Cash-out refinancing 367
13.10 All good things must come to an end 369
13.11 Conclusions 377
Chapter 14 Real estate derivatives 378
14.1 Introduction 378
14.2 A short history of the real estate derivatives market 379
14.3 Total return swaps 381
14.4 Structured real estate index notes 386
14.5 Traded property futures and options 387
14.6 Pricing property derivatives 389
14.7 Property derivatives: pros and cons 399
14.8 Property derivatives: spin-offs 401
14.9 Conclusions 405
PART FOUR CREATING A GLOBAL REAL ESTATE STRATEGY 407
Chapter 15 International real estate investment: issues 409
15.1 Introduction: the growth of cross-border real estate capital 409
15.2 The global real estate market 411
15.3 The case for international real estate investment 415
15.4 The problems: an introduction 419
15.5 Technical issues 420
15.6 Formal barriers 423
15.7 Informal barriers 427
15.8 Conclusions 433
Chapter 16 Building the global portfolio 440
16.1 The top-down portfolio construction process 440
16.2 Strengths, weaknesses, constraints: portfolio analysis 447
16.3 A pricing approach for international property 451
16.4 Managing currency exposure and currency risk 463
16.5 Portfolio construction 471
16.6 Conclusions 474
Chapter 17 Performance measurement and attribution 475
17.1 Performance measurement: an introduction 475
17.2 Return measures 476
17.3 Attribution analysis: sources of return 487
17.4 Attribution analysis: the property level 489
17.5 Attribution analysis: the portfolio level 492
17.6 Attribution and portfolio management: alpha and beta 502
17.7 Performance measurement and return attribution for property funds 505
17.8 Conclusions 518
Chapter 18 Conclusions 520
18.1 Why property? 520
18.2 Liquid structures 521
18.3 Unlisted funds 521
18.4 International investment 523
18.5 Best-practice real estate investment 523
18.6 Pricing 524
18.7 The future 525
References 526
Glossary 533
Index 548
Overview
The measurement, benchmarking, forecasting and quantitative ...