6. Investment Assessments Flashcards
What is the IRR?
The interest rate that equates to a breakeven result (NPV = 0)
What is the NPV when the interest rate used is the target interest desired on capita?
The added value worth of the development proposal
What are 3 benefits of an investment assessment?
- Allows time after completion for development to realise full benefit
- Takes into account operational cash flows
- Reflects capital gain over time
How do you calculate the revenue stream each year?
(NLA * occupancy * rental rate) - outgoings
How are investment assessments used for new and refurbished buildings? (2)
Predicts revenue performance over time
Shows investment return on funds expended
How are investment assessments used for buildings facing refurbishment?
Used to test different options (comparing IRRs)
What is an asset development audit and what is the objective?
A review of future performance
To maximise building occupation at the highest rentals to maximise asset value
Why are asset development audits done?
To determine whether a refurbishment is worthwhile and to ensure highest and best use
What are the 4 steps in the asset development audit?
- Review tenant commitments
- Consider new opportunities
- Plan ahead to renew leases
- Be ready to refurbish before lease expiry
How is an asset development audit done?
By finding gaps between what the tenants want and what they currently have
What are 3 things to consider in an asset development audit?
- How much it would cost - include compliance and special construction
- How it would be undertaken - effect on tenants
- IRR/NPV of whole asset
How do you determine the incremental return on redevelopment costs?
Subtract cash flows from doing nothing from refurbishment cash flows and calculate IRR/NPV
What is the maximum debt ratio considered safe for long term investment?
60%
