How do you handle the current situation where net operating income has plummeted, the cost of capital is through the roof, but most people believe we will be back to “normal”- two to three years from now?
The standard DCF valuation technique isn’t going to work right now. It isn’t fair to penalize the property’s value by discounting the 10-year net operating income projection using a discount rate based on the current high cost of capital.
The solution, as always, comes down to- “look at the market.” How will a typical buyer analyze a potential real estate investment at this point in time- i.e. what is the projection of net operating income, where will the acquisition capital come from and what will it cost? Based on previous cycles- this is what often happens:
-The projection of net operating income starts with the current depressed NOI and models a recovery. Depending on the local market, the type of asset and other factors- the recovery back to 2019 levels will probably be 1 to 3 years from now.
-The initial acquisition capital will probably come from a variety of sources which also depend on the local market and type of asset.
-Debt capital will cost significantly more than it did at the end of 2019. Interest rates higher and Loan-to-value ratios much lower. Amortization rates will be much shorter.
-Equity capital might also cost more because of the reduced leverage. In some cases, the initial acquisition might be all-cash.
-Terminal capitalization rates, however, will probably be the same since they are not a factor for 10-years when hopefully everything has recovered.
-The big change to the acquisition analysis is the addition of a refinancing event. Most investors buying commercial real estate today, with the high cost of capital, will structure their investment to include a refinancing that will take place after the market returns to normal- 2 to 3 years from now.
The Mortgage-Equity Appraisal Software with Refinancing was developed to handled these distressed situations by incorporating a Refinancing Event. The model performs a discounted cash flow valuation based on the projected 10 year NOI, the initial financing terms and debt service, the refinancing terms including the refinancing proceeds, the new debt service, terminal value, equity residual and equity yield.
The output from the software is highly detailed and proves that all components of capital receive their required rates of return.
There is no other Mortgage-Equity Appraisal Software on the Market that can incorporate a Refinancing Event.
The Mortgage-Equity Appraisal Software with Refinancing sells for $250/user. Discounts are available for 5 or more users.
The Mortgage-Equity Appraisal Software with Refinancing is written in Excel and will run only on Windows operating systems.
You can purchase the Mortgage-Equity Appraisal Software with Refinancing using most major credit cards including PayPal. Immediately after placing your order you will receive an e-mail from PayPal and Hospitality Consulting Services confirming your order and the amount paid. Within 12 hours of placing the order you will receive an e-mail from Hotel Valuation Software containing the software and user manual as an attachment and also a link to a website where you can download the software and manual.
Hotel Market Analysis and Valuation Software 6.0 is the only non-proprietary computer software designed specifically to assist in the preparation of hotel market studies, forecasts of income and expense, and hotel valuations. The software provides the framework, along with the mathematical calculations, to develop detailed forecasts of occupancy, average room rates, revenues and expenses that can be used as a basis for hotel market studies and appraisals. The tool consists of three separate software programs:
· Hotel Market Analysis and ADR Forecasting Model
· Hotel Revenue and Expense Forecasting Model
· Hotel Mortgage-Equity Valuation Model
Hotel Market Analysis Valuation Software was created by Steve Rushmore for his hotel consulting firm- HVS. It has been updated and enhanced by Professor Jan deRoos of the Cornell Hotel School. your business here.
The Hotel Investment Library- Books, Articles and Research on Hotel Investing
The Hotel Investment Library is a collection of timeless books and articles written by Steve Rushmore and his Associates over the past 50 years.
Steve Rushmore, Founder of HVS, pioneered the concept that hotel investing requires in depth knowledge of both hotel operations and real estate. He then literally "wrote the book" on this concept showing the world how to evaluate hotel investments through his eight textbooks, 350+ articles, software and numerous speeches and seminars.
You can now download some of his best books and articles written over the years. Also included are other noted publications and research written by his associates at HVS
Hotel Learning Online- Where hotel owners, operators, lenders and investors come to learn how to make successful hotel investments.
Over the past 40 years, Steve Rushmore has taught hundreds of classes and seminars to more than 20,000 hotel industry professionals. He is also a frequent lecturer at major hotel schools around the world, including Lausanne, Penn State, Cornell, Houston, Glion, Hong Kong Polytech as well as the Harvard Business School.
As a leading authority and prolific author on the topic of hotel market analysis and valuations, Steve has written all six textbooks and two seminars for the Appraisal Institute covering this subject. He has also authored three reference books on hotel investing and has published more than 400 articles.
Now, you can now take courses with Steve without leaving your living room. He is developing a whole series of online courses covering topics such as How to Use Hotel Market Analysis & Valuation Software, Negotiating Hotel Management Contracts, Hotel Mortgage-Equity Valuation Models, How to Buy a Hotel, Hotel Economic Cycles and many more.
If you are serious about your professional growth in the hotel industry, you should consider taking the HVS Certification version of Steve’s course- How to Use Hotel Market Analysis & Valuation Software. By taking this course and successfully completing a final project and passing a comprehensive examination, you will become an HVS Certified Hotel Market Study & Valuation Software Consultant. Adding this certification to your resume and LinkedIn profile will certainly set you apart from all the other job applicants.
Mortgage-Equity Appraisal Software- The Most Accurate Discounted Cash Flow Real Estate Valuation Software Available Anywhere!
If you appraise real estate which is normally purchased with a combination of debt and equity capital and you are not inputting the specific terms of the proposed financing- then you are probably not developing an accurate valuation. The Mortgage-Equity Software provides a proof showing the resulting value accurately produces your specified returns for both debt and equity capital.
If you develop a 5 or 10-year projection of Net Income and the lender and equity investors require specific financing terms and assumptions, there is only one value will produce the desired returns to the debt and equity components. This software model is the only software on the market that will produce the correct value. In addition to estimating value using a specified loan-to-value ratio, the software also estimates value using a debt coverage ratio and a debt yield. Does your DCF model do that?
For the last 30 years real estate appraisers have been using DCF models that assume an all cash buyer. We know most real estate in the United States is financed with a certain amount of debt. If this is the case- shouldn’t you be using a mortgage-equity model with specific financing inputs rather than “pulling an overall discount rate out of the air?”