Due Diligence and Valuation Techniques
Expert-defined terms from the Private Equity Real Estate Investing course at Stanmore School of Business. Free to read, free to share, paired with a professional course.
Absolute Priority Rule refers to the rule that in a liquidation scenario,… #
Absolute Priority Rule refers to the rule that in a liquidation scenario, senior creditors must be paid in full before junior creditors receive any payment, it is essential in private equity real estate investing to understand the hierarchy of creditors and their respective priorities.
Accelerated Depreciation is a method of depreciation that allows f… #
Accelerated Depreciation is a method of depreciation that allows for a larger deduction in the early years of a property's life, it is commonly used in tax planning for real estate investments.
Accretion is the process of increasing value over time , in the con… #
Accretion is the process of increasing value over time, in the context of private equity real estate investing, accretion can occur through appreciation or income growth.
Acquisition is the process of purchasing a property or company<… #
Acquisition is the process of purchasing a property or company, in private equity real estate investing, acquisition is a critical step in building a portfolio.
Acquisition Fee is a fee paid to the acquirer or investment … #
Acquisition Fee is a fee paid to the acquirer or investment bank for their services in facilitating a transaction, it is typically a percentage of the purchase price.
Adjusted Funds From Operations is a metric used to evaluate a c… #
Adjusted Funds From Operations is a metric used to evaluate a company's performance, it adjusts for non-cash items and is commonly used in the real estate industry.
Alternative Investment is an investment that does not fall into th… #
Alternative Investment is an investment that does not fall into the traditional categories of stocks, bonds, or cash, private equity real estate investing is an example of an alternative investment.
Amortization is the process of spreading out a cost over a peri… #
Amortization is the process of spreading out a cost over a period of time, in private equity real estate investing, amortization can be used to reduce taxes or increase cash flow.
Annualized Return is the return on an investment over a one #
year period, it is commonly used to evaluate the performance of a private equity real estate investment.
Appraisal is an independent assessment of a property 's v… #
Appraisal is an independent assessment of a property's value, it is commonly used in private equity real estate investing to determine a property's value.
Asset Allocation is the process of diversifying a portfolio by … #
Asset Allocation is the process of diversifying a portfolio by allocating assets to different classes, in private equity real estate investing, asset allocation is critical to managing risk.
Asset Management Fee is a fee paid to the asset manager for… #
Asset Management Fee is a fee paid to the asset manager for their services, it is typically a percentage of the assets under management.
Asset #
Based Financing is a type of financing that is secured by a specific asset, in private equity real estate investing, asset-based financing can be used to finance a property acquisition.
Assignee is the party that receives an assignment of a c… #
Assignee is the party that receives an assignment of a contract or lease, in private equity real estate investing, the assignee may be a new owner or operator of a property.
Assignment is the process of transferring a contract or lease</… #
Assignment is the process of transferring a contract or lease from one party to another, in private equity real estate investing, assignment can be used to transfer rights or obligations.
Asset #
Backed Security is a type of security that is collateralized by a pool of assets, in private equity real estate investing, asset-backed securities can be used to finance a portfolio of properties.
Basis Point is a unit of measurement that is equal to one hundr… #
Basis Point is a unit of measurement that is equal to one hundredth of a percent, it is commonly used to express interest rates or yields in private equity real estate investing.
Benchmark is a standard or reference point that is used to… #
Benchmark is a standard or reference point that is used to measure performance, in private equity real estate investing, benchmarks can be used to evaluate the success of an investment strategy.
Beneficial Owner is the owner of a security who benefits fr… #
Beneficial Owner is the owner of a security who benefits from its ownership, in private equity real estate investing, the beneficial owner may not be the same as the record owner.
Bid #
Ask Spread is the difference between the bid price and the ask price of a security, it is commonly used to measure the liquidity of a market in private equity real estate investing.
Blind Pool is a type of fund that raises capital from in… #
Blind Pool is a type of fund that raises capital from investors without specifying the investments that will be made, in private equity real estate investing, blind pools can be used to finance a portfolio of properties.
Book Value is the value of a company or asset as recorde… #
Book Value is the value of a company or asset as recorded on its balance sheet, it is commonly used to determine the value of a company or asset in private equity real estate investing.
Bridge Loan is a type of loan that is used to finance a short #
term need, in private equity real estate investing, bridge loans can be used to finance a property acquisition or renovation.
Build #
to-Suit is a type of lease where the landlord builds a property to the tenant's specifications, it is commonly used in private equity real estate investing to attract high-quality tenants.
Business Plan is a document that outlines a company 's go… #
Business Plan is a document that outlines a company's goals and strategies for achieving them, it is commonly used in private equity real estate investing to evaluate the potential of a company or project.
Buyout is the purchase of a company or asset using debt<… #
Buyout is the purchase of a company or asset using debt and/or equity, it is commonly used in private equity real estate investing to acquire a company or portfolio of properties.
Call Option is a type of option that gives the holder the right… #
Call Option is a type of option that gives the holder the right to purchase a security at a specified price, it is commonly used in private equity real estate investing to manage risk or speculate on price movement.
Capital Call is a request by a fund or investment vehicl… #
Capital Call is a request by a fund or investment vehicle for additional capital from its investors, it is commonly used in private equity real estate investing to finance a new investment or portfolio company.
Capital Expenditure is a payment made to acquire or improve … #
Capital Expenditure is a payment made to acquire or improve a long-term asset, it is commonly used in private equity real estate investing to upgrade or expand a property.
Capitalization Rate is the ratio of net operating income… #
Capitalization Rate is the ratio of net operating income to property value, it is commonly used in private equity real estate investing to evaluate the performance of a property or portfolio.
Carried Interest is a percentage of the profits that are paid</… #
Carried Interest is a percentage of the profits that are paid to the investment manager or general partner, it is commonly used in private equity real estate investing to incentivize the investment manager to perform well.
Cash Flow is the movement of money into or out of a business</b… #
Cash Flow is the movement of money into or out of a business or investment, it is commonly used in private equity real estate investing to evaluate the performance of a property or portfolio.
Cash #
on-Cash Return is the ratio of cash flow to initial investment, it is commonly used in private equity real estate investing to evaluate the performance of a property or portfolio.
Closing is the final step in a transaction where the tra… #
Closing is the final step in a transaction where the transfer of ownership or control takes place, it is commonly used in private equity real estate investing to finalize a property acquisition or sale.
Collateralized Loan Obligation is a type of loan that is secured b… #
Collateralized Loan Obligation is a type of loan that is secured by a pool of assets, it is commonly used in private equity real estate investing to finance a portfolio of properties.
Commercial Mortgage #
Backed Security is a type of security that is collateralized by a pool of commercial mortgages, it is commonly used in private equity real estate investing to finance a portfolio of properties.
Committed Capital is the amount of capital that has been commit… #
Committed Capital is the amount of capital that has been committed by investors to a fund or investment vehicle, it is commonly used in private equity real estate investing to finance a new investment or portfolio company.
Company is a business organization that is separate from it… #
Company is a business organization that is separate from its owners, it is commonly used in private equity real estate investing to own and operate a portfolio of properties.
Conduit is a vehicle that is used to hold and manage a p… #
Conduit is a vehicle that is used to hold and manage a portfolio of assets, it is commonly used in private equity real estate investing to own and operate a portfolio of properties.
Confidentiality Agreement is a contract that requires a party</… #
Confidentiality Agreement is a contract that requires a party to keep information confidential, it is commonly used in private equity real estate investing to protect sensitive information about a company or asset.
Consideration is the value that is received in exchange for… #
Consideration is the value that is received in exchange for a good or service, it is commonly used in private equity real estate investing to determine the value of a company or asset.
Construction Loan is a type of loan that is used to finance the <b… #
Construction Loan is a type of loan that is used to finance the construction of a new property, it is commonly used in private equity real estate investing to finance a new development project.
Consultant is a professional who provides advice or serv… #
Consultant is a professional who provides advice or services to a company or investment vehicle, it is commonly used in private equity real estate investing to evaluate the potential of a company or project.
Contract is a legally binding agreement between two or more… #
Contract is a legally binding agreement between two or more parties, it is commonly used in private equity real estate investing to establish the terms of a transaction or relationship.
Contribution Agreement is a contract that outlines the terms</b… #
Contribution Agreement is a contract that outlines the terms of a contribution to a company or investment vehicle, it is commonly used in private equity real estate investing to establish the terms of a capital contribution.
Control Person is a person who has the power to direct or <… #
Control Person is a person who has the power to direct or influence the management of a company or investment vehicle, it is commonly used in private equity real estate investing to identify the key decision makers.
Conversion is the process of converting a security or investmen… #
Conversion is the process of converting a security or investment into another form, it is commonly used in private equity real estate investing to change the form of a security or investment.
Convertible Note is a type of debt security that can be convert… #
Convertible Note is a type of debt security that can be converted into equity under certain conditions, it is commonly used in private equity real estate investing to provide flexibility to the investor.
Corporate Governance is the system of rules and practices t… #
Corporate Governance is the system of rules and practices that govern the management of a company, it is commonly used in private equity real estate investing to ensure that a company is managed in a responsible and transparent manner.
Cost Approach is a method of valuating a property based on… #
Cost Approach is a method of valuating a property based on its cost of reproduction or replacement, it is commonly used in private equity real estate investing to determine the value of a property.
Cost of Capital is the cost of raising capital for a com… #
Cost of Capital is the cost of raising capital for a company or investment vehicle, it is commonly used in private equity real estate investing to evaluate the attractiveness of a potential investment.
Covenant is a promise or agreement to perform or refrain… #
Covenant is a promise or agreement to perform or refrain from performing a certain act, it is commonly used in private equity real estate investing to establish the terms of a transaction or relationship.
Credit Agreement is a contract that outlines the terms of a… #
Credit Agreement is a contract that outlines the terms of a loan or credit facility, it is commonly used in private equity real estate investing to establish the terms of a loan or credit facility.
Credit Enhancement is a technique used to improve the creditwor… #
Credit Enhancement is a technique used to improve the creditworthiness of a security or investment, it is commonly used in private equity real estate investing to reduce the risk of a loan or investment.
Credit Facility is a line of credit that is extended to a <… #
Credit Facility is a line of credit that is extended to a company or investment vehicle, it is commonly used in private equity real estate investing to provide liquidity to a company or portfolio.
Credit Rating is a rating that is assigned to a company or… #
Credit Rating is a rating that is assigned to a company or security based on its creditworthiness, it is commonly used in private equity real estate investing to evaluate the credit risk of a company or security.
Debt Service is the payment of interest and principal on a… #
Debt Service is the payment of interest and principal on a loan, it is commonly used in private equity real estate investing to evaluate the affordability of a loan.
Debt #
to-Equity Ratio is the ratio of debt to equity in a company or investment vehicle, it is commonly used in private equity real estate investing to evaluate the leverage of a company or investment.
Default is the failure to perform a certain obligation</… #
Default is the failure to perform a certain obligation, it is commonly used in private equity real estate investing to describe a breach of a contract or agreement.
Depreciation is the decrease in value of a property or a… #
Depreciation is the decrease in value of a property or asset over time, it is commonly used in private equity real estate investing to reduce taxes or increase cash flow.
Derivative is a security that derives its value from an … #
Derivative is a security that derives its value from an underlying asset or index, it is commonly used in private equity real estate investing to manage risk or speculate on price movement.
Development is the process of building or improving a property<… #
Development is the process of building or improving a property, it is commonly used in private equity real estate investing to create value in a property.
Direct Property Investment is a type of investment where an investor</… #
Direct Property Investment is a type of investment where an investor directly owns a property, it is commonly used in private equity real estate investing to own and operate a portfolio of properties.
Discount Rate is the rate at which a company or investment … #
Discount Rate is the rate at which a company or investment vehicle discounts its future cash flows, it is commonly used in private equity real estate investing to evaluate the present value of a company or investment.
Discounted Cash Flow is a method of valuating a company or… #
Discounted Cash Flow is a method of valuating a company or investment based on its expected future cash flows, it is commonly used in private equity real estate investing to determine the value of a company or investment.
Distribution is the payment of cash or other assets … #
Distribution is the payment of cash or other assets to the owners or investors of a company or investment vehicle, it is commonly used in private equity real estate investing to return capital to investors.
Diversification is the process of spreading investments across … #
Diversification is the process of spreading investments across different asset classes or industries, it is commonly used in private equity real estate investing to manage risk.
Due Diligence is the process of investigating and evaluating a … #
Due Diligence is the process of investigating and evaluating a potential investment or transaction, it is commonly used in private equity real estate investing to assess the risks and opportunities of a potential investment.
Earnings Before Interest and Taxes is a measure of a company 's … #
Earnings Before Interest and Taxes is a measure of a company's profitability that excludes interest and taxes, it is commonly used in private equity real estate investing to evaluate the performance of a company.
Economic Value Added is a measure of a company 's profitability<… #
Economic Value Added is a measure of a company's profitability that takes into account the cost of capital, it is commonly used in private equity real estate investing to evaluate the performance of a company.
Efficient Market Hypothesis is a theory that states that financ… #
Efficient Market Hypothesis is a theory that states that financial markets are informationally efficient, it is commonly used in private equity real estate investing to understand the behavior of financial markets.
Enterprise Value is the value of a company that takes into… #
Enterprise Value is the value of a company that takes into account its debt and cash position, it is commonly used in private equity real estate investing to evaluate the value of a company.
Equity is the ownership interest in a company or asset</… #
Equity is the ownership interest in a company or asset, it is commonly used in private equity real estate investing to own and operate a portfolio of properties.
Equity Multiple is the ratio of the total value of a com… #
Equity Multiple is the ratio of the total value of a company or investment to the equity invested, it is commonly used in private equity real estate investing to evaluate the performance of a company or investment.
Escrow is a account that is used to hold funds or other<… #
Escrow is a account that is used to hold funds or other assets until certain conditions are met, it is commonly used in private equity real estate investing to facilitate a transaction or investment.
Exit Strategy is a plan for selling or exiting a company… #
Exit Strategy is a plan for selling or exiting a company or investment, it is commonly used in private equity real estate investing to maximize returns on an investment.
Face Value is the stated value of a security or instrume… #
Face Value is the stated value of a security or instrument, it is commonly used in private equity real estate investing to determine the value of a security or instrument.
Fair Market Value is the value of a property or asset that… #
Fair Market Value is the value of a property or asset that a buyer and seller would agree on in an arm's length transaction, it is commonly used in private equity real estate investing to determine the value of a property or asset.
Fee Simple is a type of ownership that gives the owner absolute… #
Fee Simple is a type of ownership that gives the owner absolute control over a property, it is commonly used in private equity real estate investing to own and operate a portfolio of properties.
Financial Model is a mathematical representation of a company</… #
Financial Model is a mathematical representation of a company or investment, it is commonly used in private equity real estate investing to evaluate the performance of a company or investment.
Financial Statement is a document that provides information … #
Financial Statement is a document that provides information about a company's financial position and performance, it is commonly used in private equity real estate investing to evaluate the financial health of a company.
Fiscal Year is a period of time that a company uses for … #
Fiscal Year is a period of time that a company uses for financial reporting and tax purposes, it is commonly used in private equity real estate investing to evaluate the financial performance of a company.
Fixed Charge Coverage Ratio is a measure of a company 's ability… #
Fixed Charge Coverage Ratio is a measure of a company's ability to cover its fixed