REE-4313 Lecture Notes - Lecture 2: Capitalization Rate, Cash Flow, Economic Equilibrium

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- Investment Process
o Identification of the investors’ goals and objectives
Wealth constraints
Risk preferences
Return requirements
Competitive advantages
o Analysis of the market conditions and environment
o Development of cash flow and return estimates
Cash flow from operations
Cash flow from sale
Unleveraged and leveraged returns
o Application of decision criteria
- Investor Objectives & Strategies
o Risk
o Liquidity
o Holding period
o Expertise
o Capital
o Investor Motives
Income objective
Return from periodic income (net cash flow)
Capitalization rate (R) = net income/value = NOI/V
Growth
Return from price appreciation
Change in value/value = [V(t) V(t-1)]/V(t)
Portfolio diversification
Tax benefits
o Strategies
Core
Existing, high-quality, high-occupancy properties with good
credit tenants
Sector
Focused on a particular sector (e.g., type and/or location)
based on expectations and investor expertise. May also be
focused on a property size and/or tenant
Growth
Identifying properties with high rent and value growth
expectations
Value
Identifying underpriced (e.g., underutilized) properties
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