This short training course is for both relatively new commercial real estate analysts and lenders as well as for experienced analysts and lenders who may wish to review three common break-even measures with a primary focus on testing how far vacancy rates can increase before net operating income – cash flow – falls to the level of existing debt service on an income producing property.
Review the relevant value drivers that determine an estimate of market value for an income producing property using the income capitalization approach to value;
Review three common measures of stress on net operating income that an income producing property must successfully withstand in order to service the property’s interest-bearing debt from property cash flow;
Examine and apply the methodology for computing a break-even vacancy rate using stabilized values for rental rates and operating expenses and assess the resulting messages about the property’s sensitivity to rising vacancy rates;
Re-apply the methodology for computing a break-even vacancy rate using existing values for rental rates and operating expenses and assess the resulting messages about the property’s sensitivity to rising vacancy rates;
Examine the importance of existing net operating income – in contrast to stabilized net operating income – in properly servicing interest-bearing debt on the property; and
Appreciate the necessity of current rent rolls and accurate operating expenses in assessing a property’s prospects for properly servicing its interest-bearing debt.
Course
Materials
Credit Refresher
on A Simple Stress Test
Presentations Slides
Online
Closure Questions
Upon
Completion
Participants who successfully
complete the workshop will
be able to:
Identify and understand the relevant value drivers that determine an estimate of market value for an income producing property using the income capitalization approach to value;
Appreciate and understand the three common measures of stress on net operating income that an income producing property must successfully withstand in order to service the property’s interest-bearing debt from property cash flow;
Apply the methodology for computing a break-even vacancy rate using stabilized values for rental rates and operating expenses and assess the resulting messages about the property’s sensitivity to rising vacancy rates;
Understand the importance of using existing values for rental rates and operating expenses in properly assessing a property’s sensitivity to rising vacancy rates;
Understand the importance of existing net operating income – as opposed to stabilized net operating income – in properly servicing interest-bearing debt on the property; and
Understand the value and necessity of current rent rolls and accurate operating expenses in assessing a property’s prospects for properly servicing its interest-bearing debt.
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