Commercial real estate finance and the lending cap rate

PurposeThe aim of this study is to report on a simple derivation that results in what the authors refer to as the lending cap rate. The lending cap rate is a unique cap rate resulting in a property valuation that perfectly aligns the maximum loan amount for the financing of commercial real estate.Design/methodology/approachThe derivation is the result of simple algebra relating the two most common underwriting ratios: debt service coverage and loan-to-value with the formula for the present value of an annuity. Numerical examples are presented to demonstrate the calculation of the lending cap rate, property valuation and maximum loan amount. The authors also present comparative statics results.FindingsThe main finding of this research is that once a lender knows the debt service coverage ratio, loan-to-value ratio and lending terms for a specific property financing request, a simple calculation reveals the lending cap rate and the property valuation that aligns the maximum loan amount implied by the two underwriting ratios.Practical implicationsOne practical implication of the research is that a simple calculation reveals the lending cap rate which facilitates timely property evaluations for lending purposes. The methods demonstrated also offer real estate finance educators a practical means of connecting the loan underwriting process with property appraisal thereby facilitating conceptual understanding.Originality/valueThe key finding is original, and the importance of the finding is that the determination of the lending cap rate is simple and has the ability to make commercial real estate lending faster and cheaper, especially in lending situations where an evaluation rather than an appraisal is appropriate.

NON-PERFORMING PROPERTY LOANS AND ITS ORIGINATION IN THE REAL ESTATE FINANCE SYSTEM: CASE STUDY OF MALAYSIA

A healthy real estate finance system is crucial for any economy to grow and thrive. However, in recent years, the sustainability and soundness of the Malaysian Real Estate Finance System had been in question as the number of non-performing property loans had been on the rise. This paper looks into how property NPLs originate within the real estate finance system in Malaysia and its current performance in Malaysia. A descriptive research design was conducted utilizing in-depth case studies of Malaysia to examine Malaysia’s real estate finance system consisting of loan originators in the primary market and the special purpose vehicle involved at the secondary mortgage market where it was found that the Malaysian Real Estate Finance System is efficiently developed and on par with other developed countries with a robust primary mortgage market, effective secondary mortgage market and a vibrant capital market. Further analysis found that there are a total of 57 financial institutions that are property loan originators in Malaysia that consists of 26 Commercial Banks, 16 Islamic Banks, 2 International Islamic Banks, 11 Investment Banks, and 2 Special Financial Institutions. In terms of NPLs in Malaysia, property loans are the largest component of total NPLs in the country, and subsequent analysis found that the number of property NPLs in the country had been rising since 2015, after a long decade decline. This study warrants further research into the causes of property NPLs in the country so that the causes of property NPLs can be monitored as part of the country's strategic monetary policy to control and reduce the number of property NPLs in the country. Ultimately, this also helps to contribute towards a sound and robust real estate finance system in Malaysia.

The value-added potential of climate services for real estate asset management

<p>In recent years the financial sector has activated itself regarding the integration of climate change risks in its risk management. This is a slow process and the realization, that also physical risks engendered by climate change should be included, is even more recent (Hamaker-Taylor et al 2018). Within the segment of asset management, notably the management of real estate assets should have particular interest in climate change, as fossil free and efficient energy use, sustainable climate neutral building materials, and minimized exposure to climate change enhanced physical risks merit all sufficient attention. Overall asset oriented climate services will be an important segment (De Bruin et al 2020) This offers a significant scope for climate services for this segment within the financial sector, but both the financial sector as user and the suppliers of climate services are still very much in an exploratory stage of defining, ordering, providing, and using climate services, which are relevant for specific risk management issues within the financial sector (Keenan 2019).</p><p>The key issue for the real estate asset manager is how climate change would affect the value of its properties with and without adaptation measures, both as such, as well as in comparison to other property. Furthermore, the disclosure of hitherto not-disclosed risk information of assets will usually affect the prices of these assets, in comparison to similar not-exposed assets (Votsis and Perrels 2016). In this contribution we illustrate on the basis of Finnish cases under what conditions more information on climate change related risks (flooding; forest damage) could entail an economically viable climate service.</p><p><strong>References</strong></p><p>De Bruin, K., Hubert, R., Evain, J., Clapp, C., Stackpole Dahl, M., Bolt, J., Sillmann, J. (2020). Chapter 8: Physical Climate Risks and the Financial Sector—Synthesis of Investors’ Climate Information Needs, in Filho and Jacobs (eds), Handbook of Climate Services, Springer https://doi.org/10.1007/978-3-030-36875-3</p><p>Hamaker-Taylor, R. Perrels, A. Canevari, L., Nurmi, V., Rautio, T. Rycerz, A. Larosa, F. (2018). <em>Results of Explorations of the Climate Services Market for the Financial Sector</em>, EU-MACS Deliverable 2.1, 23.12.2018. http://eu-macs.eu/outputs/#</p><p>Keenan, J.J. (2019). <em>Climate Adaptation Finance and Investment in California</em>, Earthscan – Routledge, London/New York, ISBN: 978-0-429-39875-9 (ebk) / ISBN: 978-0-367-02607-3 (hbk)</p><p>Votsis, A., Perrels, A. (2016). Housing prices and the public disclosure of flood risk: a difference-in-differences analysis in Finland, Journal of Real Estate Finance and Economics, November 2016, Volume 53, Issue 4, pp 450–471, DOI 10.1007/s11146-015-9530-3</p>

A Study on Regional Financial Risks Based on CoCVaR Model

For the purpose of accurate measurement of regional systemic financial risks and prevention of regional economic turmoil, this paper proposes a new measure called the CoCVaR model, based on the tail mean loss, which is applied to measure the impact of stock returns of each listed company on the overall stock returns in Guangdong Province, China, from January 2010 to December 2020. It is found that there are significant CoVaR and CoCVaR for real estate, finance, utilities, and energy companies, while the risk spillover to the real economy market in Guangdong Province is more significant when companies in these industries are in extreme situations. There are insignificant CoCVaR for daily consumption, information technology, and health care. The risk spillover to the real economy market in Guangdong Province is smaller when companies in these industries are in crisis.

Perceptions of Academics on Real Estate Topics in Africa

This paper presents the perceptions of academics on real estate topics offered in Bachelors Real Estate (BRE) curricula in Africa. In order to understand the perceptions of academics on real estate topics, a survey of seven selected BRE curricula offered in different regions of Africa was conducted to determine important real estate topics academics included in the curricula. After analyzing the curricula, sorting and re-grouping the topics: Real estate management, Real estate valuation, Real estate economics, Real estate finance and investment, Real estate development, Real estate law, Real estate planning, Real estate research, Real estate industrial training and Real estate electives emerged to be important topics the academics considered to include in the curricula. The topics are in line with those expected in a real estate curriculum. In addition, results revealed that BRE curricula follow the interdisciplinary approach to real estate education. Findings will encourage universities in Africa and elsewhere to develop comprehensive real estate curricula or improve existing ones to accommodate the interdisciplinary approach and the international perspective of real estate education because of their benefits. The study will also support the harmonization of real estate education, practice, investment and business in Africa, hence contributing towards the economic development of the continent.

DETERMINANTS OF FINANCIAL PERFORMANCE OF COMMERCIAL BANKS LISTED AT NSE IN KENYA

Purpose: The purpose of this study was to establish the determinants of financial performance of NSE listed commercial banks in Kenya. Methodology: A descriptive study design attributed to a census approach aiming at the eleven listed commercial banks in Kenya was applied. The research relied on secondary data obtained from the audited financial statements of the said banks to create the correlation between the research variables. The information on the financial effecting of the listed banks was collected using a data collection matrix. The data was analyzed by the assistance of SPSS and the outcome presented in tables using statistical aspects, which include means and standard deviations. Results: The study established that government securities (r = 0.680) had a positive and strong correlation with financial performance. Similarly, Real estate (r = 0.738), Loans (r = 0.922) and, stocks (r=.469) had a positive and weak correlation with financial performance. The findings of study show loans (p=0.000) was most significant, followed by funds allocated to Government securities at p=0.149 then by funds allocated to stocks (p=.850) and least significant was real estate financing at p=0.972 at 95% confidence level. The findings show that there was a strong positive correlation (r=0.926) between Funds allocation and financial performance of commercial banks, according to the findings, 85.7% of financial performance of commercial banks could be attributed to the funds allocation to various assets. Adding another variable say, x5 will lower the strength of the model from 85.7 % to 84.6 %. Unique contribution to theory, practice and policy: The study recommends that listed commercial banks should diversify their real estate finance schemes to make it reachable to more customers since real estate had a significant effect of their financial performance. A study should be conducted on other variables such as inflation, exchange rates and interest rates fluctuations. A study should also be conducted to investigate the low yield of investment in loans in contrast to investment in government securities

Walking the financialized city: confronting capitalist urbanization through mobile popular education

How do communities understand the highly abstract process of housing financialization? In this paper we argue that walking tours offer the capacity to develop new forms of mobile, public education to learn about the capitalist urbanization process, especially as the financialization of housing accelerates. Based on walking the city of Manchester we show that this type of learning may improve public literacy concerning the opaque and extended ways in which housing in central areas has increasingly been shaped by new types of real estate finance. Although many people in Manchester have understood the outline of these dramatic transformations, and could connect the new skyscrapers to their struggles for everyday survival, there remained a gap in detailed literacy of the actors, finances and dynamics that had changed the city so quickly. We contextualize the rapidly changing global landscape of housing since the global financial crisis of 2008 before showing how these transformations have reshaped housing in Manchester. We then describe the motivations for developing the tour, and the details of the walk itself. We conclude by suggesting that the walking tour offers new types of possibility in necessary learning and subsequent action to address capitalist urbanization.

The Role of Banking Finance in Developing Housing Sector: Case study of Real Estate Commercial Bank- Sudan (2011- 2018): دور التمويل المصرفي في تنمية قطاع الإسكان: دراسة حالة البنك العقاري التجاري- السودان (2011- 2018)

The study aims to clarify the role of banking finance on developing housing sector in Sudan (2011- 2018). Descriptive analytical and case study approaches were used. The study reached several results, including a weak contribution (4%- 14%) of commercial banks in financing housing sector due to restriction of granting real estate finance. Moreover, political instability and miss- management of public resources have contributed to the failing of some economic and social projects. Nevertheless, Real Estate Commercial Bank (RECB) played a vital role in developing the housing sector through financing, constructing and rehabilitation of some housing projects. The study recommended to increase the capital of RECB and real estate financing ratio to enable it to provide housing and public services such as electricity, water stations and schools especially for people with low- income. Also, the state should take into consideration designing housing plans and banking policies that support housing sector to enable it to meet population growth.