Real estate finance 1

Real Estate Finance Spring 2011 Dean Don Weidner ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Background on Contracts and Conditions Donald J. Weidner Seller Broker Buyer Seller Buyer Lender Listing Agreement Contract of Sale “ Interim Contract” Closing Consummation (“Closing”) of the Contract of Sale is subject to certain conditions, which must be satisfied within a particular period of time, usually involving: a) title; b) physical condition; and c) financing.

Contract Conditions ,[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Illusory Contracts ,[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Homler v. Malas, (Text p. 95) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Homler v. Malas (cont’d) ,[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Homler v. Malas (cont’d) ,[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Homler v. Malas (cont’d) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Definitions of Good Faith ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Liuzza v. Panzer (Text p. 98) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Kovarik v. Vesely (Text p. 99) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Kovarik v. Vesely (cont’d) ,[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Kovarik v. Vesely (cont’d) ,[object Object],[object Object],Donald J. Weidner

Variables that Determine Debt Service ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Loan to Value Ratio ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Loan to Value Ratio (cont’d) ,[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Appraisals: Three Basic Indications of (or ways of approaching) Value ,[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Appraisals: Three Basic Indications of (or ways of approaching) Value (cont’d) ,[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Donald J. Weidner GROSS MULTIPLIER  Derive value from gross rentals Assume a Recent Sale: 12 Million Sales Price 2 Million Gross Rental Revenue = 6 [Gross Multiplier] Applying this rough method, a comparable property with only $600,000 of Gross Rent receipts would therefore have a $3,600,000 value (six times gross rent receipts) ($600,000 X 6 = $3,600,000) Sales Price of Comparable Properties Gross Rental Revenues of Comparable Properties = Multiplier

Donald J. Weidner CAPITALIZATION RATE  Capitalize the value of the net rentals ,[object Object],[object Object], The price x 8/100 return = $150,000 Divide each side of the equation by 8/100 (  x 8/100) x 100/8 = 150,000 x 100/8  = $1,875,000 ,[object Object],[object Object],.12 return = $150,000  The price x Divide each side of the equation by .12 ,[object Object],[object Object],1) 2) 2) 1) How Much Will An Investor Pay for a Building that has a $150,000 Net Cash Flow? Basic idea:  x 8% = $1,000 per year  is how much an investor will pay for the right to receive $1,000 per year if the investor will insist on an 8% return on his or her investment. In this example,  is $12,500

Donald J. Weidner DISCOUNTED CASH FLOW Values property by a) estimating future cash flows and b) discounting those future cash flows to their present value. Discounting is the obverse of compound interest. Net Cash Flow=Rent Receipts–Real Estate Taxes–Maintenance– Insurance–(Principal + Interest) = $1,000 Assume purchase of 10-year position  10 year leasehold ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],HYPO: What is the [present] value of the right to receive a net cash flow of $1,000 at the end of each of the next ten years? Assume the investor requires a 20% rate of return. Because of the spreading out of the $1,000 payments over the next 10 years, their value today is only

Donald J. Weidner ,[object Object],[object Object],BUILDING LAND ½  PLAZA ½   HOTEL CP Operating Agreement SUBLEASE OF  ½ FEE INTEREST LEASE OF  ½ FEE INTEREST LEASE Plaza Hotel Associates 340 N.Y.S.2d 796 (N. Y. Sup. 1973)

Plaza Hotel Facts ,[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Plaza Hotel Highlights ,[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

More from Plaza Hotel ,[object Object],[object Object],[object Object],Donald J. Weidner

Plaza Hotel (cont’d) ,[object Object],[object Object],Donald J. Weidner

A Different View on “Free and Clear” Appraisal ,[object Object],[object Object],[object Object],Donald J. Weidner

Length of Loan ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Rate of Interest ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Points ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Donald J. Weidner . . . PASSAGE OF TIME DEBT SERVICE IN DOLLARS SELF AMORTIZING LOANS First type: Constant Payment DEBT SERVICE COMPONENTS Principal Interest

Donald J. Weidner . . . PASSAGE OF TIME DEBT SERVICE IN DOLLARS SELF AMORTIZING Second Type: Constant Amortization DEBT SERVICE COMPONENTS Principal Interest

Donald J. Weidner . . . PASSAGE OF TIME DEBT SERVICE IN DOLLARS NON SELF AMORTIZING DEBT SERVICE COMPONENTS BALLOON Principal Interest

Florida Statute on Balloon Mortgages (Supplement p. 25) ,[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Florida Statute on Balloon Mortgages (Cont’d) ,[object Object],[object Object],Donald J. Weidner

Pre-Depression Residential Financing ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Post-Depression Mortgage Insurance ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

The American Dream of Home Ownership ,[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner *By 2008, many suggest that federal housing officials trying to get the homeownership rate as high as possible helped cause the “subprime” crisis by encouraging loans to high-risk borrowers Many also fault Alan Greenspan’s Federal Reserve Board for keeping interest rates too low for too long. Ben Bernanke does not.

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],“ NEW” TYPES OF CONSUMER MORTGAGES (Text p. 409) Donald J. Weidner

1) ADJUSTABLE RATE MORTGAGE ,[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Adjustable Rate Mortgages (cont’d) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Adjustable Rate Mortgages (cont’d) ,[object Object],[object Object],[object Object],Donald J. Weidner

2) GRADUATED PAYMENT MORTGAGE ,[object Object],[object Object],Donald J. Weidner

3) RENEGOTIABLE RATE MORTGAGE (a.k.a. “Rollover Mortgage”) ,[object Object],[object Object],Donald J. Weidner

Goebel v. First Federal (Text p. 403) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Goebel (cont’d) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Goebel (cont’d) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Goebel (cont’d) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Note to Goebel v. First Federal ,[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

4) SHARED APPRECIATION MORTGAGE ,[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

5) PRICE LEVEL ADJUSTED MORTGAGE ,[object Object],[object Object],Donald J. Weidner

6) Reverse Annuity Mortgage ,[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Growth of Debt Securitization in Real Estate ,[object Object],[object Object],[object Object],Donald J. Weidner

Growth of Debt Securitization in Real Estate (cont’d) ,[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Growth of Debt Securitization in Real Estate ,[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Federal Reserve Policy ,[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

“ Crisis Looms in Market for Mortgages” (Supplement p. 1) ,[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Crisis Looms in Mortgage Market (cont’d) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Crisis in Mortgage Market (cont’d) ,[object Object],[object Object],Donald J. Weidner

Crisis in Mortgage Market (cont’d) ,[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Banks Sue Originators on Repurchase Agreements (Supplement p. 7) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Rating Agencies ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

The Rating Agencies (Supplement p. 10) ,[object Object],[object Object],[object Object],Donald J. Weidner

The Rating Agencies (cont’d) ,[object Object],[object Object],[object Object],Donald J. Weidner

The Rating Agencies (cont’d) ,[object Object],[object Object],Donald J. Weidner

Collateralized Debt Obligations ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

The Housing Bubble ,[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

The Housing Bubble ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Foreclosures: 2008-2010 Number of Homes Repossessed Donald J. Weidner ,[object Object],[object Object],[object Object],Donald J. Weidner

Securitisation, When it goes wrong . . . . (Supplement p. 13) ,[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Securitisation, When it goes wrong . . . . (cont’d) ,[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Securitisation, When it goes wrong . . . . (cont’d) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Securitisation, When it goes wrong . . . . (cont’d) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Securitisation, When it goes wrong . . . . (cont’d) ,[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Servicers and Tranche Warfare ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Servicers and Tranche Warfare (cont’d) ,[object Object],[object Object],[object Object],Donald J. Weidner

Servicers and Tranche Warfare (cont’d) ,[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Fannie Mae and Freddie Mac: End of Illusions (Supp. P. 19) ,[object Object],[object Object],Donald J. Weidner

Fannie Mae and Freddie Mac: End of Illusions (Cont’d) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Fannie Mae and Freddie Mac: End of Illusions (Cont’d) ,[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

TARP: “Troubled Asset Relief Program” ,[object Object],[object Object],[object Object],Donald J. Weidner

TARP (cont’d) ,[object Object],[object Object],[object Object],Donald J. Weidner

Potential Foreclosure Relief Through TARP ,[object Object],[object Object],[object Object],Donald J. Weidner

Opposition to “Cram Down” Authority ,[object Object],[object Object],Donald J. Weidner

Other TARP Issues ,[object Object],[object Object],[object Object],Donald J. Weidner

Quantitative Easing ,[object Object],[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

Representations and Warranties by Mortgage Sellers ,[object Object],[object Object],Donald J. Weidner

Representations and Warranties by Mortgage Sellers (cont’d) ,[object Object],[object Object],[object Object],[object Object],Donald J. Weidner

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