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MODULE 9

MODULE 9. INTRODUCTION TO REAL ESTATE FINANCE. Fundamentals of Real Estate Finance. Financing Decisions Balancing Risks and Rewards Risk Analysis Inflation (Purchasing Power Risk) Default Risk Business Risk Liquidity Risk Financial Risk Leverage Intermediation

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MODULE 9

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  1. MODULE 9

  2. INTRODUCTION TO REAL ESTATE FINANCE

  3. Fundamentals of Real Estate Finance • Financing Decisions • Balancing Risks and Rewards • Risk Analysis • Inflation (Purchasing Power Risk) • Default Risk • Business Risk • Liquidity Risk • Financial Risk • Leverage • Intermediation • Real Estate Finance Industry • Financing Process • Recent Trends and The Economy

  4. US Savings Rate % Source: BEA

  5. Real Gross Private Domestic Investment Bill. Of 1992 $ Source: US Dept. of Commerce

  6. Total Personal Savings Bill. $ Source: US Dept. of Commerce

  7. Gross Private Savings Bill. $ Source: US Dept. of Commerce

  8. ’97-98 Ranking of Capital Sources for Real Estate: • Pension Funds • Insurance Companies • REITs • Non-REIT Securitization • Domestic Investors & “Opportunity Funds” • Domestic Banks • Foreign Investors • Credit Companies • Foreign Banks

  9. Indirect Finance Flow of Funds in Savings Investment Cycles Banks Thrifts Life Insurance Mutual Funds REITs Pension Funds Securities, Notes Deposits Surplus Income Units Deficit Income Units $ $ Funds Savings $ Direct Finance $ Brokers Mortgage Bankers Mortgages Securities FNMA GNMA FHLMC Private Financing Secondary Mortgage Market

  10. Total Outstanding Mortgages $, Bill. Source: Federal Reserve

  11. Total Agency MBS Outstanding $, Bill. Source: GNMA, FNMA, FHLMC

  12. Outstanding Agency CMOs $, Bill. Source: GNMA, FNMA, FHLMC

  13. Net Increase of Foreign Owned Assets in US $, Mill. Source: BEA, DOC

  14. Primary Market vs. Secondary Market

  15. The Financing Environment I Debt Equity Funds Funds Capital Debt Service Return on and of Equity Municipal Services Public Sector Fees Developer Operator The Real Estate Service Property Taxes & Fees Occupancy Costs Real Estate “Services” The Markets & Users

  16. The Financing Environment II

  17. Interest Rates & Yields Determination • Supply & Demand • Money, Economy & Inflation • Default Rate • Callable Risk • Maturity Risk • Marketability (or Liquidity) Risk

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