I am no beginner to real estate nor to excel or finance. However much of my background is in direct real estate investing and not that much in listed real estate although I am analyzing that too. I am looking for an advanced book on financial modelling in excel that is focused on real estate (preferably listed re). I am decent at modelling as is but want to learn other ways of thinking/modelling and expand my skills. Any suggestions?
Nobody uses Excel in real estate. Learn Argus for modeling.
Ya many firms ask for Argus exp…but not sure all RE IBs use it. also wonder how can one learn Argus without getting into the filed…any idea ?
Ya many firms ask for Argus exp…but not sure all RE IBs use it. also wonder how can one learn Argus without getting into the filed…any idea ?
Argus is used by the direct real estate guys… IBs dont really use Argus…
What do you mean by “listed” real estate? Syd is right. But you can learn Argus by attending a training course. There are tons of them.
Argust training costs big $.
The 2-day course I was required to attend (lame) is $1100. It costs a lot, but if you know you want to be in a position where Argus experience is necessary, it may be worthwhile. There appear to be cheaper online options available. Alternatively, I think you can download a trial version of the software and could probably teach yourself a lot of it.
Well by listed I mean REITs where applicable and quoted property companies in the other countries (in Europe). Excel is used extensively in real estate investment banking, private equity and banking analysts covering real estate companies. I have heard of the name Argus but never seen it or heard anyone ever use it here. I work for a large consultant so we have adviced many of the big players, it might be that they are using Argus behind the scenes?? Is Argus that great? Is it flexible enough? Just curious, maybe it is something we should look into? So no books then…
Argus is THE software for modeling in real estate. Nearly anyone who works in real estate, including those who are investment analysts (for developers and lending organizations), use Argus, at least in the United States. I have no clue what REITs use (then again, REITs are the biggest fraud on the planet and have a horrible track record for investors, so who cares what they use anyway?).
Argus is used for doing discounted cash flow analysis on properties or portfolios of properties. REIT analysts don’t use it as they use Excel models to forecast earnings of the companies. i.e. REIT analysts (and others who analyze real estate companies, as opposed to the underlying properties) don’t get as micro as property investors do. kkent, care to explain what you mean by horrible track record? They’re stumbling now with pressure on cap rates and the current credit crunch, sure. But they’ve done very well in the past. Check out this link, which shows total return of U.S. REITs included in NAREIT’s REIT index. http://www.nareit.com/library/performance/monthlysum.cfm People who work in acquisitions, dispositions and development for REITs all use Argus. It is the main software to learn if you want to be in any of these roles.
Looks like Argus is really popular in the US. Treynor, I doubt it would be as flexible as a purpose built excel model though! I’ve had some experience with real estate modelling software, and flexibility is something excel kicks all their a$$es on! and kkent…I must ask…why are REITs “the biggest fraud on the planet”?
cfa2grunt, according to the organization (NAREIT) charged with pumping up its industry, REITs did very well during one of the biggest housing bubbles in American history as we had rates since 2000 at historic lows. Even NAREIT’s stats don’t demonstrate particularly good long-term returns for the REIT index given such volatile returns (9.63 percent since 1998 and long-term returns hovering around 10 percent). I wouldn’t call those returns particularly good. I’d call it a fraud given the wealth of other investments out there that are far superior on a risk-adjusted basis. I just did a quick calculation and found that even given the extraordinary returns of 2003, 2004, and 2006, the annualized return is roughly 15 percent, and that’s for an obscenely volatile investment in its best period maybe ever.
kkent - get your head out of your actuarial books and into some real estate annals, and try pulling out the old Bloomberg terminal (and maybe an Excel spreadsheet to crunch some total return numbers, while you’re at it). The NAREIT Equity Index has tracked property REITs (who own the underlying assets, vs. mortgage REITs who profit mainly on their spreads on their mortgages made) since 1972, and has included the vast majority of the publicly traded property REITs in its index, closely tracking the industry. Property REITs have offered higher returns and lower volatility than the S&P 500 over virtually any period you look at, historically (though obviously not over 2007 and YTD), and have also become less and less correlated to the index over time. As the industry and overall liquidity grows (it went from about $5B market cap in 1990 to about $275B today) and becomes more widely followed and understood as an asset class, that volatility should decline. REITs have historically traded near their underlying NAV, which is simply understood because they own their underlying assets that generally appreciate in value. Generally, a REIT shouldn’t trade too far below NAV because the company could always liquidate all of its assets and distribute the proceeds at any time, which would amount to approximately their NAV. There are other factors involved, but many REITs should arguably trade above their NAV due to strong management teams and business platforms, long-term stable predictable cash flows and revenues that are tied to leases that generally increase annually at a rate that is oftentimes a small multiple of the CPI. Some data for you to ponder: Using a rolling 5-year monthly historical return correlation to the S&P, the correlation has ranged from 0.63 in 1976 to 0.73 in 1990; dropped to 0.40 in 2000, and, going into 2007, was down to 0.37, however has risen to 0.49 today due to the poor performance in 2007. Historical total return data, as of year-end 2007: …NAREIT…S&P 500 1-Y RETURN…-11.2%…5.6% 3-Y RETURN…12.0%…8.7% 5-Y RETURN…21.0%…13.2% 10-Y RETURN…12.7%…7.2% 15-Y RETURN…14.7%…11.8% 20-Y RETURN…13.9%…13.0% 25-Y RETURN…14.6%…13.8% 30-Y RETURN…15.4%…14.0% 35-Y RETURN…14.7%…12.3% As for REITs being the biggest fraud on the planet: On what basis are you coming from with this claim? Especially as you are now working in the commercial real estate industry yourself: this claim appears ludicrous. And, to the Argus/Excel debate: Argus is for direct property asset management; Excel is for financial statement analysis and modeling cash flows.
kkent, let’s back up here. First, what mcthorp said. Second, the S&P returned only 5.9% over that same 10-year period. Care to back up your claim that REITs are “obscenely volatile” compared with the S&P? They have been more volatile recently due to the credit crunch/cap rate increases, but, prior to the last 6 - 12 months, their volatilities were pretty similar to that of the S&P. The big case for investing in real estate has been a diversification one. Real estate markets used to have lower correlation with other asset classes. Unfortunately, that is changing, but many other asset classes have become more highly correlated in the last few years. Seems to me you’re regurgitating some argument somebody else made because you obviously don’t have any numbers to back yourself up. I know you have a whole 6 months in the working world to draw upon here, but you might want to get your facts in place before asserting your ill-informed arguments so strongly.
So we understand that Argus is the major software for r. estate valuation but I think Treynor still hasn’t received an answer if there are any excel books on real estate.
I have always used excel for modeling and if you know how what variables go into a model the excel part is cake. Exception being if you work for a firm investing in RE securities and pools which will want from analysts yield calculations and daily exposure reports etc. This is where VB comes in and maybe even a bit of XML to import and manipulate date (Yuk!) You need 2 books. One which tells you how to model and then a gen help book on excel if you are rusts on macros/sheet protection and embedding object functions. I reco this book for modeling as a start (http://www.appraisalinstitute.org/ecom/publications/Item.asp?ID=89). It will ease you into valuation modeling. You better know the principles here. Next, move on to the hardcore stuff (Private Real Estate Investment by Roger J Brown). Bust out your calc for dummies book. This shows you the 40+ variable models for leasing analysis, return simulations etc etc. This stuff is the meat and potatoes. Excel is just a tool. Most smaller or old school firms use excel. Everyone else uses Argus since constantly creating and maintaining models is usually not worth the brain damage in excel.