Tag: Real Estate Investor Reporting

What Is a REO Schedule?

Post author By Jen Tindle
Post date January 26, 2024

Perhaps a lender, bank, or investor requested a schedule of REO to preliminarily validate your firm’s track record. Well, what is a REO schedule?

What is a REO schedule and how do you build it?

REO stands for “real estate owned” and a REO schedule simply means a list of all of the real estate owned by your firm. So how do you complete a basic REO schedule?

Start by listing each real estate investment that your firm has ever had an equity or credit ownership stake in. Most requestors of REO schedules will also want you to include a column for the fund name, if applicable, as well as the address, property type, total square feet, number of units (if multifamily) or number of beds (if hospitality), and current projected 12 months’ NOI.

For equity investments, they will also want you to input the acquisition date and price, disposition date and price (if applicable), and ownership percentage of each investment. Now, ownership percentage may seem like a simple request at first, and it usually is. However, you might think that they mean the ownership percentage after current projected sale’s waterfall distribution. That is a complicated request and likely not what they want. Instead, most requestors of an REO schedule want the percentage of equity invested by your firm divided by the total equity invested by all owners.

For credit investments, they will typically ask for the total commitment amount, interest rate, origination date, and maturity date. In this scenario, the interest rate is too simple of a request. Do they actually want the accrual rate? Use your best judgment here. Explain the rate you listed in a footnote.

Keep in mind that some REO schedules may require additional detail. Having the basics outlined here will most certainly help you complete a schedule of REO faster and more accurately.

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I hope you use your newfound REO schedule knowledge to improve your processes. Let me know if you have any questions or edits. I always love hearing from you.

Tags CRE Investor Reporting, CRE Lender Reporting, Lender Reporting, Real Estate Investor Reporting, Real Estate Lender Reporting, Real Estate Owned, Real Estate Owned Schedule, Schedule of Real Estate Owned

Accounting Asset Management Finance Investor Reporting

Do You Know The Most Common Commercial Real Estate Valuation Methods?

Post author By Jen Tindle
Post date January 4, 2024

Firms often choose one of three common real estate valuation methods for fair valuing their properties. Do you know what they are? If not, you should.

The most common real estate fair valuation methods include the income approach, sales comps, or the bid on value (BOV) method. Most opt for the income approach, which gives you a clear estimate of the specific investment’s value based on actual net operating income and recent sales.

The Income Approach

The income approach involves three crucial steps:

Projecting Future Net Operating Income: Start by creating a discounted cash flow model to predict the net operating income (NOI) for the next 12 months. NOI, not to be confused with net income, is the linchpin of real estate valuations. It encapsulates the property’s cash flow by considering operating revenues and expenses.
Determining Market Cap Rates: You must gauge the specific investment’s market cap rates. Cap rates, or “capitalization rates”, are typically calculated as the sum of forward 12 months’ NOI divided by the property’s purchase price or valuation. Cap rates differ greatly by market, property type, vintage, and more. You must research each property’s cap rate and consult third-party data sources for accurate, recent, and property-relevant cap rates.
Calculating Property Value: Armed with NOI projections and cap rates, you can unravel the property’s true value. Divide the investment’s projected 12 months’ NOI by the market cap rate, and you’ve got the value of the property if it were to sell today.

Sales Comps

If properties sold recently near yours, then you could argue that your property would sell for around the same price. That said, you need to ensure comparability of properties via:

vintage,
construction,
size,
composition, and
other reasonable forms of comparison.

Typically, firms will gather as many recent comps (comparable sales) as possible. Then, they will divide each purchase or sale price by the property’s square feet, units, beds, etc.

Next, they will average the purchase price per square foot, units, beds, etc. and then multiply it by your property’s square foot, units, beds, etc. This allows you to calculate your property’s relative value.

Finally, this valuation method is tricky not because of the math, but because many states are what’s called “non-disclosure” states. In these states, parties to a real estate sale are not required to disclose price information. That makes accessing recent sale comps challenging.

BOVs

Another common real estate valuation method is BOVs, or broker opinion of value. I rarely see this method used in isolation to value a property. Normally, you request BOVs to support the sales comp method of valuation or your income approach valuation. That’s because a BOV is exactly what it sounds like: a broker’s opinion of your property’s value. Most brokers will provide you with a higher-than-actual BOV to entice you to sell. As such, it’s not considered as reliable as the other two valuation methods.

Great! We’re done now, right?

Not so fast.

Get the Full Details on Real Estate Valuation Methods

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I wrote this free white paper for you. Take it, expand on it, and let me know your feedback.

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I hope you use your real estate valuation methods knowledge to make improve your valuations. Let me know if you have any questions or edits. I always love hearing from you.

Accounting Asset Management Investor Reporting KPIs

How to Prepare Real Estate Investor Reporting

Post author By Jen Tindle
Post date December 20, 2023

It’s that time of year. You need to prepare your real estate investor reporting. Where to begin?

Investment structures and investor composition drive private equity real estate firm’s reporting. For example, the SEC requires certain filings based on your investment structure. Large, institutional investors require quarterly and annual reporting. This is typical regardless of whether they invest in a fund or syndication.

Recently, that reporting has expanded beyond financial projections and operations. Now, it often includes environmental, social, and governance (ESG) data. Many also include diversity, equity, and inclusion (DE&I) data.

Required investor reporting will likely continue to expand over time.

Beyond Financial Statements: Real Estate Investor Reporting

Most of you could guess that you need to prepare financial statements for your investors. And loads of you probably know that you also prepare capital account balance statements by investor.

What you may not realize is that most successful real estate firms provide far more than the minimum required reporting.

Investors LOVE transparency. The more information you can provide on their investments – while still making your firm look excellent – the better.

Get the Full Details on Investor Reporting

Want to learn more about real estate investor reporting? Amazing! You’re not alone.