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Real Estate Debt Management
- 1. Take Command of Your Real Estate Debt
- 2. October 2008 Survey Results: Debt Ratios are Critical How important are the projections of current and future debt ratios to your financial and operational decision making? 51% 51% 18% 20% 7% 7% 24% 22% 0% 10% 20% 30% 40% 50% 60% Debt Service Coverage Ratio Loan-to-Value Highly important Important Somewhat important Not important
- 3. Getting the Information Takes Time How quickly can you track… Loan-to-Value 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% A Single Property A Portfolio of Assets An Entire Fund Weeks Days Hours Minutes Debt Service Coverage Ratio 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% A Single Property A Portfolio of Assets An Entire Fund Weeks Days Hours Minutes
- 4. Excel: the Dominant Debt Management Tool Tools used for…
- 5. Taking Command of Your Debt Loan Terms and Covenants Payment History Match Future Debt Service with Projected Cash Flows Match Principal Due with Projected Asset Value Prepayment Penalties Debt Mark-to-Market A SINGLE PLACE TO MANAGE DEBT You need visibility and control of…
- 6. Where Existing Tools Fall Short Loan Terms and Covenants Excel doesn’t have built in structures to store this information Most people don’t capture the information in a place that is easy to access Payment History Match Future Debt Service with Projected Cash Flows Match Principal Due with Projected Asset Value Prepayment Penalties
- 7. Where Existing Tools Fall Short Loan Terms and Covenants Payment History Months and months of information manually updated Lots of work… Lots of room for error… Match Future Debt Service with Projected Cash Flows Match Principal Due with Projected Asset Value Prepayment Penalties
- 8. Where Existing Tools Fall Short Loan Terms and Covenants Payment History Match Future Debt Service with Projected Cash Flows Dozens of spreadsheet tabs… Interest rates have to be manually updated for variable rate loans… Cut and paste Argus output into spreadsheet… Align with debt service… Rollup… A cumbersome process… Lots of room for error Match Principal Due with Projected Asset Value Prepayment Penalties
- 9. Where Existing Tools Fall Short Loan Terms and Covenants Payment History Match Future Debt Service with Projected Cash Flows Match Principal Due with Projected Asset Value Maintain principal balance… Have Argus cash flows Calculate dcf Change exit cap rates as the market changes… A very complex workbook… Lots of room for error Decision lag time Prepayment Penalties
- 10. Where Existing Tools Fall Short Loan Terms and Covenants Payment History Match Future Debt Service with Projected Cash Flows Match Principal Due with Projected Asset Value Prepayment Penalties Many prepayment penalties are based on yield to maturity Continually update the interest rate the clause is tied to Manually intensive… Error-prone…
- 11. Where Existing Tools Fall Short Loan Terms and Covenants Payment History Match Future Debt Service with Projected Cash Flows Match Principal Due with Projected Asset Value Prepayment Penalties Debt Mark-to-Market RISK TIME
- 12. Additional Excel Challenges Difficult to provide secure access to all decision makers and stakeholders Confidence in the results is shaky Maintenance is painstaking Slicing and dicing is difficult Not scalable RISK TIME
- 13. Taking Command of Your Debt with Portfolio Maximizer All relevant debt information in one place Easy to access Automatic updates For actuals and projections Built-in debt calculations Prompt you for the information needed Integrated with entire capital structure So you can optimize returns and minimize risk RISK TIME
- 14. For More Information Contact Sales: Steve Fischer Tel: 617-338-0456 x1021 sfischer@resolvetech.com Download Solution Datasheets View Webinar
Hinweis der Redaktion
- Thank you Steve, and thank you all for joining us today. Everyone is talking about the debt crisis, its affect on the economy, and the bailout, but what we’re going to focus on today is the practicality for someone managing investments of what debt mgmt means to you. This includes understanding what you need to do your job, the challenges in achieving it, and discussing a better way of doing it.
- The next question we asked revolves around the importance of current and future debt ratios in your decision making. Not surprisingly, more than 70% of you view debt service coverage ratios and loan to value as either important or highly important. Additionally, you view not only current ratios as being important but future ones as well.
- We were then curious to learn how long it takes to get these debt ratios. What’s interesting to note is that it takes longer to get dscr than it is to calculate ltvs. The reason being is that the process to calculate debt service coverage, which involves capturing and matching up your asset cash flows with your debt service payments is more difficult and time consuming than just knowing your outstanding debt balance and property value. But more importantly, what your answers tell us is that when it comes to getting debt information on more than a single property, a significant # of companies are taking days and weeks to get this information. Given how critical these ratios are for decision making, I would say that these timeframes are unacceptable and puts companies in a compromised situation.
- The final survey question that we’ll look at is what tools do you use for managing your debt. The overwhelming response, almost 70% of you, say that you do it in Excel.
- When we talk to our clients and the rest of the industry about managing debt, we hear, that at a minimum, You want to be able to capture the loan terms and covenants. Why? Because with no easy access to loan terms, every time a question is asked, every time a decision has to be made, you’ve got to go back to the loan documents to get the answer. If you don’t know the loan covenants, you could be in violation of the loan agreement now or in the future and you also need to understand ths information for decision making; You want to be able to capture the loan’s historical payments. Without the historical payments, you can’t calculate any type of historical or cradle to grave leveraged performance returns; You want to be able to calculate the loan’s future debt service, and at the same time, bring in your asset’s cash flow and match it to the loan payments. If you don’t have this information, then you have no visibility into your debt service coverage, no visibility into future problems, and no visibility into your loan’s principal balance at any point in time. No visibility means no ability to manage risk. You want to be able to project the principal due upon maturity with the collateral or asset’s value at that same date. Related to an earlier need, if you don’t know what your debt balance is and what the projected property value is, when your loan comes due, it’s possible that your principal payoff is greater than your asset value. You want to be able to quickly calculate any prepayment penalties. If you can’t, then you can’t strategize on which assets to sell. You want to have a single place to manage debt – to capture it, to process it, to perform what if on it, to report on it, and to access it
- Given everything that we’re trying to achieve, it’s clear that excel falls short as a solution. Talk about the points… …so obviously by not having this information easily accessible we run the risk of violating the loan agreement without even knowing we do.
- Talk about the points… … which clearly adds both time and risk to the process
- Talk about the points… … again, more risk, more time wasted
- Talk about the points… … again, more risk, more time wasted
- Talk about the points… … here again, you know the story, more risk, more time wasted
- So basically at every task and every level of managing debt with the current tools we are adding time and risk to the process
- Add’l excel problems.
- So we talked about what debt management is and what are some of the challenges of achieving it in excel. What I’d like to show you now is a better way of doing it. Quick overview of Portfolio Maximizer and its focus Focus on providing them …why do you need the entire cap structure to take command of debt. For you to take command of debt, need to be able to do following things on next webinar. Where we’ll show you how to achieve abc benefits on next webinar.
- Thank you very much for attending our webinar today. Before you leave, please take some time to help us fill out a feedback survey. Your comments and feedback will help us better improve the quality of our future webinars. Thank you again, and I hope to see you online soon.