A High Level Business Case is an executive summary view of the main business case of a Real Estate Investment Project. The High Level Business Case is meant to explain, in condensed form and plain language, the objectives that the proposed investment project is intended to achieve, the major considerations, the resources required to complete the project, the desired outcome, the predicted return on investment, and a projection on when the Return on Investment (ROI) is likely to be achieved.
Holding Period is the length of time an investment, or capital investment funding, is held in a particular project.
While both terms are often used to describe performance of a real estate investment over a set period of time (normally a year), Return and Yield are not one at the same time. Return expresses what an investor has actually earned on an investment as a percentage increase over a certain period in the past, and which include interests and related capital gains. Return can therefore be called retrospective or what has been earned in the past. On the other hand, Yield is prospective and forward-looking. It is the income return on an investment that measures the income that an investment earns based on initial cost but ignores capital gains.
Anyone considering investing in Real Estate or buying a Real Estate Property must be interested in what return the property will give them. In other words, he or she must be interested in Yield. A yield is a measurement of income return on an investment. It is generally calculated as an annual percentage rate, based on the asset (or investment) cost or market value. Yield is an important way of measuring the future income on an investment. This is because the return you get now and in the future is a key factor in working out whether to invest in a particular investment venture or not.
IRR stands for Internal Rate of Return. It is an investment performance measure used in commercial real estate to measure the potential or profitability of a particular real estate investment. IRR is expressed in percentage rate earned on each shilling or dollar invested for each period in a particular Investment venture. The use of IRR as a performance measure in Real Estate Investment is to give an investor the means to compare alternative investments.
Owner’s Equity represents the Owner’s or Sponsor’s investment in a Real Estate business venture minus the amount of liabilities.
Capital structure is how a Real Estate business venture finances its overall Project Cost plan by using several sources of funds. The sources of funds can range from debt, private equity, or working capital.
Finance Deficit is the amount of money by which an investment project fall short of the budget cost. This is the express finance interest that a Real Estate Developer seeks from an Investor or a Financier.
Joint Venture is a real estate business arrangement in which two or more parties agree to pool their real estate resources together for the purpose of accomplishing the project investment objective, this being gaining a return on investment from their individual resource contribution into the project. The resources may include land, finance, or technical expertise. JV can take any legal structure through a Special Purpose Vehicle, be it Corporation, Partnership, Limited liability companies and other business entities.
Contractor’s Debt Financing is a form of Mezzanine debt financing provided by a Development Contractor to fill the gap between Senior Debt and Equity financing in projects they are involved in as building contractors. The Contractor’s Debt financing is in many occasions converted into equity for recovery through shares capital.
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