The long-term impact of FIRREA on real estate finance

Article Abstract:

The Financial Institutions Reform, Recovery and Enforcement Act, designed to restructure the troubled savings and loan (S&L) industry, is also expected to change the way commercial real estate is financed. Some real estate industry critics charge that the 1989 law is partly responsible for the current credit crunch. The law was created to restrict S&Ls from the free-wheeling financing of properties that led to the failure of many institutions. However, some expect the excessive capitalization requirements may turn thrifts completely away from construction investment.

Federal savings institutions, Laws, regulations and rules, Savings and loan associations

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Drums along the efficient frontier

Article Abstract:

Modern portfolio theory (MPT), or the practice of achieving a balanced portfolio through calculated fractions of office, industrial, retail and apartment properties, is an inaccurate guide for real estate asset allocation because investment returns depend on varying circumstances of investment properties. Returns are also inconsistent and independent of property types or locations. MPT analysis can also reduce the volatility of portfolio returns for individual property types. Graphs and charts of investment results are included.

Portfolio management, Return on investment

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The at-risk rent ratio

Article Abstract:

At-risk rent ratios (ARRR) help investors to measure risk from tenant renewal assumptions and credit ratings. ARRR analysis separates actual cash flow from contract rents, vacant space rents, forecasted rents and rents from assumed releases of expiring leases into contracted rents and projected rents categories. The ratio is calculated by dividing the investment property's at-risk projected rents by eventual gross income. Charts and graphs of hypothetical ARRR calculations are included.

Methods, Risk assessment, Discounted cash flow

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