Valuation in an evolving market
How To
December 22, 2021
Land and Build Lifecycle
To talk about why you would want to use Forbury Finance, we would first need to talk about the Land and Build Lifecycle.
Let's imagine a Carparking lot in the city, someone buys it then builds a nice office building. In 10 years’ time, the building gets a bit worn down and gets listed for sale, another person buys it, put some CapEx (Capital Expenditure) to renovate it, and we have a bigger, better office tower. 30 or 40 years later, when the building is too old to maintain, the owner decides to turn it into a hotel, and later once it becomes outdated, it gets turned into a hostel. Eventually, when there is no residual value, someone will eventually knock it down, or Mother Earth will knock it down and turn it into a Carpark again. The lifecycle then starts again, and in each stage, we will need to run a valuation to the land or the building, to see how much it should be acquired for.
How do I buy a building?
After running valuations, and deciding to acquire the building, there are a couple of ways to purchase.
Full Equity:
Option 1: you go all-in on your own cash, but there are a couple of drawbacks of using your own cash. First, you may not have enough cash, most buildings cost millions, or billions of dollars. Or alternatively, you may not want to go all-in on a building and may want to use some of your cash for other ventures, this is called opportunity costs.
Option 2: Equity tranches. Equity tranches are when you and your capital partners all decide to purchase the building, and everyone puts equity into the building. The capital partners may have slightly different conditions, risks and returns, e.g., when you sell the building, one capital partner may have a condition that says that they want to be paid out first.
Leverage:
Option 1: Debt. This is the most well-known method, where you take out a loan from the bank.
Option 2: Equity. You can use your existing assets as collateral.
The benefit of using leverage is that you can grow your own equity money.
So, who uses Forbury Finance?
Property Owners use our Forbury Finance or Forbury Portfolio to manage their investments.
There are 3 parts to the financial tool:
- Acquisition: debt drawdown and equity contribution
- Hold Period CF Management: pay interest and expenses, pay distribution
- Disposal: repay debt principal and final distribution
With Forbury Finance, you have the additional functionality to enable you to structure debt-equity, enter in the funding assumptions, track financial covenants, and do everything in one model, no need to use lots of different software to see your true returns. You don't have to import or export data, play around with numbers, or use an accounting team. It's all at your fingertips as a one-stop shop to get the ultimate bottom line return.
Do you need more information on Forbury Finance?
Over the years, more features and functionality have progressively been added into Forbury's software. We are continuously thinking of better ways to leverage our property valuation tech for the benefit of our customers. Property professionals using Forbury gain increased accuracy and speed, empowering them to cover more of the market without additional resources and expense.
To learn more about how Forbury can transform your business, book a free demo at the link below.
