Dates                                                                  

 27-28 October 2008

Course Overview

The purpose of this seminar is to train participants in all of the important aspects of valuing property.
It begins with a thorough review of the relevant techniques in appraising commercial property and then covers the methodology of assessing the capital value of residential property.

Special emphasis is given to the underlying approaches, such as net operating income, the projection of cash flows, the assessment of the cost of capital, the cost and sales comparison approaches and the use of real options.

The theoretical techniques are fully compared to the techniques that are deployed in practice.

Each participant will be required to bring a laptop running Microsoft Office with a USB Port to the seminar.
 

Course Content

 Commercial Property – Assessing Income
Appraisal of Income Property – the RICS Guidelines and their
 international equivalents
Comparison with corporate finance valuation
Reporting according to IFRS standards
Case Study: Impact of International Accounting Standard 17 (leases)
 on real estate valuation
Bricks, Mortar, and the Building Envelope
Lifecycle costing
Tests of Financial Solvency (Static Analysis)
Tests of Profitability (Dynamic Analysis)
Case Study: Applying the depreciated replacement cost methodology to
 value specialized (iconic) buildings

 Residential Property – Assessing Capital Value
Why buy residential real estate?
Does rental income matter for residential property?
What are the main problems?
Evidence from pension fund holding in Europe
Qualitative issues, competition, style and marketing
Case Study: The addition of real estate to the GIPS (CFA Institute)
 valuation guidelines

 Net Operating Income (NOI)
Gross and net income
Differences in calculating NOI
Overall capitalisation rate
Capital expenditure issues
Differences between property types
Approaches to the cap rate
Case Study: The band of investment approach

 Projecting Cash Flows
The dynamic behavior of the 4-Q model: stability versus oscillations.
Real Estate Pricing Behavior: backward or forward looking?
Forecasting markets: Univariate analysis, Vector Auto regressions,
 structured models.
Forecasting examples.
The definition and evaluation of “risk”
Case Study: Forecasting Techniques

 Creating and using a detailed Discounted Cash Flow (DCF) model
Debt service and pre-tax cash flow
The sinking fund
Lease variations
Differences between sectors
Estimating resale value
Terminal capitalisation rates
Exercises: Delegates will use a number of real world examples to create
 and use spreadsheets for DCF valuation

 Cost of Capital for Real Estate Companies
What is the significance of the cost of capital?
Differentiation between debt and equity
Hybrid products
The pecking order theory of cost of capital
The role of debt in corporate management
Case Study: Economic Value Added (EVAtm) as applied to real estate
 companies

 Real Options and the Real Estate process
Does property possess real options?
Examples of possible real estate real options
Call Option approach to land value
Samuelson-McKean approach
Difficulties of measurement
Potential benefits
Exercise: Participants will value a potential development on the basis of
 conventional DCF and real option analysis

 Land Prices
Should land prices be calculated separately?
How cyclical are land prices?
Modelling land prices
Empirical evidence on land prices
Forecasting land prices
Case Study: Data availability on land prices

 The Cost Approach
Type of costs
Methods of evaluating costs
Sources of cost estimation
Incurable and curable depreciation
Market extraction method
Exercises: Delegates will use spreadsheet models to calculate a range
 of cost estimates for individual properties

 The Sales Comparison Approach
Value, Worth and Price
Sources of Comparable Data
Identifying points of comparison and difference
Sales Comparison Approach Example
Exercises: Using the sales comparison approach in practice

 Highest and Best Use Approach
Definitions of HBU
Site Value
Improved Value
Calculating HBU
Case Study: Business Plan for Dubai Sports City analysed

 Valuation in Practice
How is valuation practiced by chartered surveyors?
What are the key elements of the RICS and TEGOVOFA Valuation
 Guidelines?
What is the evidence on valuation practice in the UK?
How is valuation practiced differently elsewhere in the world?