A Discussion of Commercial Real Estate Career Paths

Transcription

1 A Discussion of Commercial Real Estate Career Paths Paul Boneham Executive Vice President/Principal October 2016

2 What s So Unique About Real Estate? No Two Properties are the Same Inefficient Markets 1

3 Four Primary Arenas Debt Equity Services Public Sector 2

4 Five Primary Property Types, Plus Office Apartment Industrial Retail Hotel Niche* * Land, Senior Housing, Student Housing, Condos, Infrastructure, Medical Office, Timber, Parking 3

5 Defining Performance for Debt and Equity Calibrating Returns to Reflect RISK and REWARD 4

6 Measured Returns Debt and Equity vs. Treasuries Reward Captured via Spread to Index (e.g., Treasuries, LIBOR, Prime) Note: 16Q3 Treasury rate is QTD average through 8/4/16 Sources: NCREIF (transaction-based cap rates), Federal Reserve, Moody's Analytics 5

7 Traditional Debt Providers 6

8 Traditional Equity Investors 7

9 Typical Functions Debt/Equity Transactions/ Sourcing Portfolio Management Asset Management Client Relations Market Research Capital Markets 8

10 Defining Performance at Service Firms Production Revenue Growth Repeat Customers 9

11 Service Functions Investment Sales Leasing Landlord Representation Leasing Tenant Representation Property Management Appraisal Consulting Construction Management Mortgage Brokerage 10

12 Defining Performance in the Public Sector ENSURING SAFE, EFFICIENT AND SUSTAINABLE PUBLIC SERVICES AT ALL LEVELS OF GOVERNMENT 11

13 Public Sector Functions Taxation/ Assessment Urban Renewal/ Affordable Housing Planning and Zoning Utilities, Infrastructure and Transportation 12

14 Case Study 222 South Main, Salt Lake City, UT Start December 2007 Site Improvements LEED Status Parking Cost 1.63 Acres 426,000 sf NRA Gold 852 spaces (2.0/1,000 sf) $134 MM Construction Debt $66 MM, Libor +225 Leasing 85%/15 Tenants/ Weighted Average Term 9.7 Years Sale Date February 2014 Price $170 MM 13

15 Case Study 222 South Main, Salt Lake City, UT Building a team to create a building 14

16 Case Study 222 South Main, Salt Lake City, UT Zoning/Building Inspection - City of Salt Lake Investment Sale - Cushman & Wakefield Developer - Hamilton Partners Anchor Tenant Leasing Rep. - Cushman & Wakefield Architect SOM Landlord Leasing Rep. - CBRE General Contractor Oakland Construction Property Manager - Hamilton Partners Equity Co- Investment, Bentall Kennedy Debt - JP Morgan and Bank of America 15

17 So what does this mean for me? 16

18 Financial Analyst The Common Entry Level Position The ideal candidate will possess a degree in business administration, real estate, finance, accounting or economics. This individual s responsibilities will include: financial projections, lease analysis, budget review, credit analysis, and due diligence projects. He or she will possess excellent oral and written communication skills, be able to work independently, and have demonstrated analytical ability. Candidate will be skilled in Excel, Argus, and MS Word. Any prior experience in real estate will be a plus. 17

19 Back to the Basics 18

20 Value Property Value = Net Present Value of Future Cash Flow Stream 19

21 Sample Transaction (10-Year Pro Forma) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 For the Years Ending Nov-2011 Nov-2012 Nov-2013 Nov-2014 Nov-2015 Nov-2016 Nov-2017 Nov-2018 Nov-2019 Nov-2020 Potential Gross Revenue Base Rental Revenue $3,136,534 $3,176,249 $3,182,042 $3,229,428 $3,300,671 $3,335,835 $3,376,040 $3,380,940 $3,424,873 $3,559,424 Absorption & Turnover Vacancy -49,481-46,536-46,343-7,272-63,248-65,674 Scheduled Base Rental Revenue 3,087,053 3,176,249 3,182,042 3,182,892 3,300,671 3,289,492 3,368,768 3,380,940 3,361,625 3,493,750 Base Rental Step Revenue 1,557 4,317 3,380 2,870 Expense Reimbursement Revenue Common Area Maintenance 167, , , , , , , , , ,196 Insurance 27,923 29,384 30,265 30,791 32,106 32,693 34,004 35,086 35,622 36,575 Real Estate Taxes 145, , , , , , , , , ,801 Administrative Fees 17,810 19,041 19,613 20,347 22,124 22,412 23,362 24,125 24,313 24,993 Management Fees 29,996 33,745 33,982 32,696 37,057 36,121 38,413 38,998 36,530 38,553 Total Reimbursement Revenue 388, , , , , , , , , ,118 St. Louis PT Loan Payment 5,216 5,216 5,216 5,216 5,216 5,216 5,216 5,216 5,216 4,781 Total Potential Gross Revenue 3,480,586 3,599,231 3,616,779 3,619,718 3,763,882 3,755,429 3,859,083 3,889,400 3,868,201 4,012,519 General Vacancy -117, , , , , , , , , ,991 Effective Gross Revenue 3,363,552 3,426,133 3,442,269 3,487,149 3,575,378 3,609,854 3,668,364 3,689,502 3,729,076 3,865,528 Operating Expenses Common Area Maintenance 171, , , , , , , , , ,295 Insurance 28,527 29,383 30,264 31,172 32,107 33,071 34,063 35,085 36,137 37,221 Real Estate Taxes 153, , , , , , , , , ,825 Management Fee 100, , , , , , , , , ,966 Non-Reimbursables 6,059 6,241 6,429 6,621 6,820 7,025 7,235 7,452 7,676 7,906 Total Operating Expenses 461, , , , , , , , , ,213 Net Operating Income 2,902,238 2,952,131 2,956,644 2,988,709 3,062,478 3,083,744 3,127,967 3,135,563 3,160,651 3,279,315 Debt Service Interest Payments 1,226,484 1,212,287 1,197,140 1,180,978 1,163,734 1,145,335 1,125,704 1,104,758 1,082,410 1,058,564 Principal Payments 211, , , , , , , , , ,896 Origination Points & Fees 189,650 Total Debt Service 1,628,111 1,438,460 1,438,460 1,438,460 1,438,460 1,438,460 1,438,460 1,438,460 1,438,461 1,438,460 Leasing & Capital Costs Tenant Improvements 82,425 83,442 76, ,002 53, , ,130 Leasing Commissions 30,009 36,527 25,310 62,828 24,029 94,974 83,217 Capital Reserve $12,119 $12,483 $12,857 $13,243 $13,640 $14,049 $14,471 $14,905 $15,352 $15,813 Total Leasing & Capital Costs 124,553 12,483 12, , , ,879 92,328 14, , ,160 Cash Flow After Debt Service $1,149,574 $1,501,188 $1,505,327 $1,417,037 $1,508,432 $1,411,405 $1,597,179 $1,682,198 $1,457,781 $1,526,695 But Before Taxes 20

22 How Can You Differentiate Yourself? 21

23 And in Conclusion Emphasize your FOCUS Act ENTHUSIASTIC! Geographic flexibility a plus Do your homework on employers Follow up Know terminology and use it Never stop building your network of contacts Learn ARGUS The package = salary + bonus + training + benefits + experiences 22