IMPORTANT TERMS/PROJECT DEVELOPMENT Setback/building line —requirement to construct building a specified number of feet (setback) from the right-of-way line or other landmark. This is to ensure conformity with adjacent buildings and/or provide clear visibility for pedestrians and/or motorists. Right-of-way line —area designated for a public street or alley that is dedicated for traffic, public use, utilities, etc. Public entities own this area and the general public has a right to use it. As a result, no improvements are generally allowed to be constructed on rights-of-way. Building-related terms: Footprint —the space/area included within the perimeter of a slab, wall, or exterior of a structure. It is the shape or outline of the primary building slab or foundation as it will be constructed on the site. Envelope —the total outside perimeter of a structure, including footprints and any exterior patios, mallways, landscaping, etc. Facade —the exterior, usually the main entrance of a structure; approval of facades may be required as a part of the preservation of a historically important building or because of unique architecture, etc. Bulk —a three-dimensional space within which height, width, footprint, and number of structures/elevations/shapes are viewed in total relative to the land area upon which it will sit to determine land use intensity. This is then evaluated by planners relative to other structures in the area to assess the potential for congestion, noise, etc., for the entire area. Building codes —refer to required materials and methods used to construct improvements within a jurisdiction. Adherence to these codes is enforced by inspections before a certificate of occupancy (CO) is issued. Permit —document executed by the director of planning authorizing the construction, restoration, alteration, repair, etc., of a structure and acknowledging that it conforms to requirements under the applicable zoning ordinance. Floor-to-area ratio (FAR) —one of the more important tools used by city planners to control size and activity (use) desired within a geographic area. It is usually calculated as gross building area divided by square footage of land area. For example, an FAR of 3- to -1 would, for one acre of land (43,560 sq. ft.), provide that a structure with a gross building area of 130,680 sq. ft. may be developed (3* 43,560= 130,680). Obviously, the greater the FAR allowed for a site, the larger the project that may be constructed on that site, and vice versa. Height restrictions —used to limit the vertical height of a structure to be constructed. Usually imposed by a zoning ordinance; however, also subject to FAA aircraft approach/landing requirements and FCC communication tower regulations. Suburban locations usually have lower restrictions than central business districts (CBDs), which usually allow both greater heights and FARs. Allowable use —user activities permitted in a zoning classification, such as florist, travel agency, insurance agency, etc. Usually based on SIC code classifications. Impact fees —charged by public entities to cover added public sector expenses expected to be caused by a development, such as added traffic control, transportation issues, drainage, etc. Incentive zoning —used by city planners to accomplish community goals simultaneously with private sector development. Examples include the public sector granting a developer additional FAR, height, density, etc., if a development includes multifamily housing or a public park. Inclusionary zoning —that part of a zoning ordinance that requires that a specified type of development be included in order to obtain a permit for that site. An example would be the requirement that low-income housing units be included in a multifamily housing development in order for a permit to be granted. Minimum lot size —per zoning classification. Examples include light industrial (usually no minimum), medium industrial (5 acres), heavy industrial (10 acres), single family residential (1/4 acre per lots), and multifamily (20 units to the acre, i.e., 240 units requires 12 acres). This is used to assure some separation between large-scale developments. Parking ratio —required number of parking spaces per square feet of gross building space or per number of apartment units. (e.g., one parking space per 1,000 sq. ft. of office space, or 1.5 spaces per apartment unit). Different ratios may apply to underground or elevated parking garages, surface parking, and shared parking (day-night) with other structures. Site plans —drawing done to scale depicting the placement relative to right-of-way lines and setbacks of structures, circulation, parking, buffers, major landscaping, etc., on a site. Elevations/renderings —may first be conceptual or preliminary, then working, then final drawings of the improvements (buildings, etc.) to be constructed on a site. Will usually accompany the site plan as a part of presentation materials used for permitting, zoning, and financings. Traffic counts —number of vehicle trips per hour past a specific site. Studies may be performed to ascertain the current traffic volume and the likely increase to be caused by a development. This study may be required as a part of an application for a permit, rezoning, or assessing impact fees by public entities. Encroachment —occurs when the construction of improvements extends over a property line on to an adjacent property. Property tax abatements —forgiveness of taxes for a specified number of years, which is used by city planners to attract development to certain locations. Examples would include property tax reductions for a hotel if constructed near a public convention center, sports facility, etc. Special sales tax districts —special sales tax imposed on retail activities in an area which is dedicated to be used to finance public improvements/streets, etc., in that area, or dedicated to pay interest on public bonds issued to construct facilities in the affected district. Land-to-value ratio —calculated as dollar value of land to total project value (including land) anticipated upon completion of project. Used as a benchmark to evaluate whether the ratio of land acquisition price relative to total project value is comparable to that of other projects in the market. Buffer/berm —construction of landscape/slope required to shield or block access, view, or noise from an adjacent property which may be a very different and/or nonconforming use. Density transfer or transfer of development rights (TDR) —allowed in some jurisdictions whereby one property owner can sell/transfer to another all or part of the development rights for his property, including allowable building height, density, and FAR, allowed under current zoning. This enables the acquiring entity more height and/or density for its development than what would otherwise be possible. Mixed use development —usually a combination of office, retail, and/or hotel in a project; may also include recreation, sports facilities, etc. Inverse condemnation —results of a development that affect the value of nearby/adjoining land uses. Examples: building an airport, dam, power stations, etc., in an area that affects property values to a greater/lesser degree but may or may not require condemnation of the entire area via eminent domain. Cumulative zoning —used in many jurisdictions to automatically allow lower density development than the maximum allowed under current zoning. For example, the most dense, noisy, etc., land use is usually heavy industrial zoning. Under cumulative zoning, land owners in an area zoned heavy industrial may develop less intrusive buildings, such as distribution centers, warehouses, etc., within the heavy industrial classification. Other examples would allow single family units (lower density) to be built within a multifamily zoning classification (higher density). However, more intrusive uses are not allowed in a less intrusive zoning classification (e.g., no multifamily development within an area zoned for a single family). Stacking plan —a floor-by-floor template or layout used to diagram how much space will be available for lease per floor in a building and to track the location and quantity of space currently leased to tenants.
Financing Corporate Real Estate This chapter focuses on the decision to own or lease real estate that is used by a corporation as part of its core business. We show the decision to own versus lease real estate to be similar to the pure real estate investment decision we analyzed extensively in earlier chapters. A key difference, however, is the impact that ownership or sale-leaseback of real estate can have on the corporation's financial statements. Whether a particular corporation should own or lease depends on whether it has a comparative advantage owning real estate relative to other investors or investment vehicles. CFOs, realizing the importance of property to their bottom line and share price, are increasingly giving corporate real estate more attention. Facilities managers today must justify ownership of real estate against a variety of alternatives that combine the operating control provided by ownership with reduced investment and greater flexibility. Corporations are more likely to accept such alternatives, which include a variety of leasing forms as well as joint-venture ownership, as ownership becomes unnecessary to maintaining operating control of real estate. Corporate real estate 企业选择拥有房地产的原因 Owning, rather than leasing, space used in the operation of the business. 拥有而不必租赁经营所需空间 Investing in real estate as one means of diversification from the core business. 多元化的投资手段之一 Retaining, rather than selling, real estate that may have been used previously in business operations. 保留以前经营使用的房地产 Acquiring real estate for future business expansion or relocation. 为业务扩张或搬迁而购置房地产
Disposition and Renovation of Income Properties The primary purpose of this chapter is to answer the following two questions: (1) When should a property be sold? (2) Should a property be renovated? We will see that once a property has been purchased, the return associated with keeping the property might be quite different than the return originally estimated. The concept of a marginal rate of return helps evaluate whether a property should be sold or held for an additional period. The marginal rate of return considers what the investor could get in the future by keeping the property versus what he could get today by selling the property. To determine whether a property should be renovated, we consider the incremental benefit associated with renovating the property versus not renovating the property. This approach is appropriate when the investor already owns the property and the question is whether an additional investment made to renovate the property is justified. If the investor does not already own the property, we must take a different approach. In this case the investor will want to know the total rate of return associated with both purchasing and renovating the property. The investor will also want to know the return for purchasing the property but not renovating it, since it still might make sense to purchase the property but not renovate it. From the above summary, it should be obvious that the approach we take when analyzing an investment depends on the particular question that we are trying to answer. Poor investment decisions are often made because the analyst did not answer the right question.
Investment Analysis and Taxation of Income Properties 收益性房地产的投资分析和税收制度 This chapter introduces concepts and techniques important in the analysis of real estate income property. We will discuss ways of projecting cash flows for an investor and ways of evaluating those cash flows with various measures of investment performance. The performance measures we discuss in this chapter ( IRR, NPV, DCR, etc.) will be used throughout the remainder of the text. Although the techniques in this chapter provide a good initial analysis of a project, as we will demonstrate by the office building example, many questions remain to explore in more depth. For example, How will taxes affect the performance of the property? Are there alternative ways of financing the property that would be better? The remaining chapters in this part of the text will cover these and other questions. Another area this chapter covers is the key tax considerations that affect real estate investment decisions. These considerations include determining the appropriate marginal tax rate, rules for depreciating real property, calculation of taxable income from operation of the property, and calculation of capital gain. These tax considerations will enter into different types of analyses that we will address in many of the remaining chapters of the text. In several cases we will be applying the tax rules introduced in this chapter to see how they affect investment. We will consider issues such as, What is the optimal time to dispose of a property? and, Is it profitable to renovate a building? Additional tax considerations, such as the taxation of limited partnerships and development projects, will also be introduced in future chapters. Remember, however, that tax laws are subject to revisions that can have a substantial impact on the calculation of taxable income and taxes for real estate income property. Thus, this chapter is not intended to be a substitute for a comprehensive analysis of how current and future tax laws may affect a specific investor. It does, however, point out the general issues that investors should take into consideration regardless of the specifics of the tax law in effect at a particular point in time.
Income-Producing Properties: Leases, Rents, and the Market for Space 收益性房地产:租赁、租金和市场空间 The purpose of this chapter is to familiarize the reader with lease provisions and operating characteristics generally representative of major property types. The illustrations will show that regional economic conditions, market supply and demand, lease terms, tenant credit, investment risk, and the ability of property owners to pass through operating costs are all important considerations in income property analysis. Furthermore, the ability to modify and develop pro forma cash flow statements and to undertake a competitive market analysis serve as foundations for analysis and for estimating an investment value for properties being sought for acquisition. These latter topics will be the focus in the chapters that follow.
Mortgage Loan Foundations: The Time Value of Money 按揭贷款:资金的时间价值 This chapter introduces and illustrates the mathematics of compound interest in financial analysis. Although this may be a review for many readers, a thorough understanding of this topic is essential in real estate finance. The concepts and techniques we introduce in this chapter are used throughout the remainder of this text to solve a variety of problems encountered in real estate finance. In the following two chapters, we apply the mathematics of finance to the calculation of mortgage payments and the effective cost of various alternative mortgage instruments. Later, we apply the mathematics of finance to the analysis of income property investments. This chapter illustrates the use of financial tables, interest factors, and how these tables and factors can be found using a financial calculator. These tables are included to help the reader to understand the process of compounding, discounting, and finding internal rates of return by using interest factors. The tables are not necessary to solve any of the problems in the remainder of the book. In fact, an alternative calculator solution is also provided for many of the problems. The interest factor solutions are shown only so that the readers can see the mathematics behind the calculator solutions. As we move toward more advanced material, it is assumed that readers can obtain the solutions using a financial calculator or by using a spreadsheet program on a personal computer.
CHAPTER 1. Basic Legal Concepts This chapter discusses legal considerations important in creating and defining various rights to real property. This is important in the study of real estate finance since it is these rights that are purchased, sold, and mortgaged. Thus, an understanding of the various rights associated with real estate is necessary to properly evaluate a real estate financial decision. Legal considerations affect the risk of receiving the economic benefit associated with one's property rights. For example, we will discuss the importance of having a marketable title . Any defects in the title may result in a loss of benefits to the owner and jeopardize the collateral value of the real estate for the mortgage lender. To some extent, this risk is controlled and minimized by the use of title assurance methods, including title insurance and the use of general warranty deeds. Knowing the various ways of partitioning property rights may also result in maximizing the value of a particular property, since it allows parties with different needs (e.g., users, equity investors, lenders) to have claims on the property rights that best meet those needs. Thus, the total value of all the rights associated with a property could exceed the total value of the property itself if there are no leases or other ways to separate rights. 重点关注leasehold estate A leasehold estate, on the other hand, expires on a definite date. Aside from this technical distinction, a freehold estate connotes ownership of the property by the estate holder, whereas a leasehold estate implies only the right to possess and use the property owned by another for a period of time. 几个概念Interests, Encumbrances, and Easements An interest in real estate can be thought of as a right or claim on real property, its revenues, or production. 权益 例: Apart from actual ownership , an interest in real estate may consist of a lease , a mortgage, a lien or other encumbrance on the property . 除实际拥有权以外, 不动产可包括租凭, 房产抵押, 抵押品留置权以及其他财产负担等。 For example, an owner of real estate in fee simple may choose to pledge or encumber his property as a condition for obtaining a loan (mortgage loan). 抵押和拖累(设置权益负担) . In this case, the lender receives only a secured interest, but not possession , use , and so on , of the property. 例: Neither Party may pledge, mortgage or otherwise encumber all or part of its Equity Interest without the prior written consent of the other Party. 未经另一方事先书面同意,任何一方不得质押、抵押其全部或部分股权或对其全部或部分股权另行设置权益负担。 An easement is a nonpossessory interest in land. It is the right to use land that is owned or leased by someone else for some special purpose (e.g., as a right of way to and from one’s property). An easement entails only a limited user privilege and not privileges associated with ownership. Assurance of Title 产权保证 Title assurance refers to the means by which buyers of real estate “(1) learn in advance whether their sellers have and can convey the quality of title they claim to possess, and (2) receive compensation if the title, after transfer, turns out not to be as represented.” Title is an abstract term frequently used to link an individual or entity who owns property to the property itself. When a person has “title,” he is said to have all of the elements, including the documents, records, and acts, that prove ownership.产权通常是指证明所有权的各种文件、记录等。 Flowchart: Ownership of Real Property Ownership- Proof of ownership-Title- Assurance of title- General warranty deed- Qualified warranty deeds- Evidence as to the nature and quality of title being conveyed- Attorney’s opinion- Title insurance Essentially, title exists only for freehold estates . A leasehold estate, on the other hand, is typically created by a contract (called a lease) between a person who holds title (the lessor ) and another person (the lessee), whereby possession of the property is granted by the owner to the other person for a period of time. The existence of leases on a property will, however, affect the nature of the rights that can be conveyed to a new buyer because lease terms are binding on the new owner unless waived by the lessee or, in some jurisdictions, unless title is acquired at a foreclosure sale. Because investors and lenders are concerned about the nature and extent of the rights they are acquiring or financing, leases encumbering the property can have a profound impact on a property’s value. Deeds 契据 Usually title is conveyed from one person (the grantor) to another (the grantee) by means of a written instrument called a deed. General Warranty Deed