Buildings, Occupiers, Leases and the Arithmetic of an Institutional Asset Class
Julian R. Sterling
Four Excel workbooks. The first works rent — per square meter, per cubic meter, and
net effective three ways. The second works valuation: net income, term and reversion, and an ageing asset
priced honestly. The third works development: the carry, the letting decision and what the land actually
supports. The fourth is the specification checklist, the lettability thresholds and the sixty questions,
as documents you can take on site. 115 figures are checked against the book, and all 115 reproduce.
Free to download. No sign-up, no email address, nothing to fill in.
Everything described below is inside it, with the read-me.
The four workbooks
Appendix D · Cases 1 and 2
Rent, cube and net effective
An occupier stores goods in a volume and pays rent on a plan, and every disagreement about what a
tall building is worth comes from that mismatch. Two buildings of identical footprint, one at 8.0
metres of clear height and one at 12.5: an agent quotes the taller at 132 per square meter on a
cube-parity basis. Deduct what the occupier must spend on racking and handling to use the height,
split the surplus by negotiation rather than by arithmetic, and the defensible band is 88 to 103.
132 is not in it — and none of the analysis needs a single comparable. Then net effective rent
done three ways on one lease: 80.58, 75.05 and 86.94 per square meter. Only the third is evidence of
market rent, and reaching it means splitting a landlord’s contribution between what permanently
improves the building and what bought nothing but a headline. Further sheets price a fixed uplift
against its own average and show what a cap on an indexed lease surrenders, year by year.
Rent_and_Net_Effective.xlsx · XLSX · 22 KB
Appendix D · Cases 4 and 5
Valuation and the ageing asset
A single unit and a fourteen-unit estate produce the same 1,400,000 of gross rent. Priced to the
same net yield they are worth 25.3 million and 20.5 million, and the 128 basis points between their
headline yields is not a risk premium — it is the arithmetic of converting gross rent into net
income, worked line by line rather than by a rule of thumb, which is always kinder than a schedule.
Then a 22-year-old unit marketed at a 6.25 per cent yield: 24.2 million on the marketing figure and
18.5 million once the capital cycle and the re-letting are priced. Nothing about the building changes
between those two numbers. Buying at the honest figure is buying at 8.71 per cent, not 6.25. A land
check closes the sheet: cleared, the site is worth 4.36 million, so the building accounts for 544 per
square meter — and the pricing question answers itself.
Establish the carry first: on the book’s scheme, 142,500 a month, of which more than
two-thirds is finance rather than building. Everything else is arithmetic around it. Four letting
outcomes, weighted, give an expected profit of 6.0 per cent on cost — a fee rather than a
development margin, earned for carrying two years of letting risk against a downside that loses
6,575,000. The same numbers say the land supports 2.76 million, not the 4.70 million being paid; the
difference is the price of the letting risk, and a separate residual sheet shows what the identical
scheme is worth with a pre-let in hand. And then the two dates: the scheme breaks even if it lets
within 29.2 months of completion and earns fifteen per cent only if it lets within 8.3. Any developer
describing that as low risk is describing the first date and pricing the second.
The specification checklist — 54 items across ten sections, with a column for the
measurement, a column for where the figure came from, and a verdict. It enforces the book’s two
habits: write down the measurement rather than the adjective, and record the source, because a number
taken from a brochure and a number taken with a laser have different standing and you will not
remember which was which. The thresholds sheet is the one to read before the visit: eight dimensions
that behave as cliffs rather than as slopes, each with a cell for this building and a pass or fail
— and a count of the ones not yet established, because a threshold that is not established is
not a threshold that is passed. Then sixty questions to ask before underwriting, each with the
book’s own note on what a weak answer sounds like.
Income is taken annually in arrears throughout, which slightly understates value against
quarterly-in-advance receipt and is the conservative choice.
On the checks sheets
115 figures are checked against the book across the first three workbooks, and all 115 reproduce.
Each line carries its own tolerance, set to the precision the book actually prints: a percentage
printed to one decimal is checked to five hundredths of a point, an annuity factor printed to four
decimals to six hundred-thousandths, money to a unit. That is stricter than a single blanket band, and
it is the honest way round — a check whose tolerance is loose enough for its worst line is not
checking its best ones. Where the book has compounded two rounded factors through a long chain, the
variance column shows the actual difference rather than hiding it.
Opening the files
The workbooks open in Microsoft Excel, LibreOffice Calc, Google Sheets and Numbers. They use no macros
and no add-ins, so nothing needs to be enabled or trusted. If your spreadsheet asks to update links on
opening, decline — there are none.
The book these files come from
Logistics and Industrial Real Estate by Julian R. Sterling. The workbooks reproduce the worked examples in the
chapters; the book is where the reasoning behind them is set out. It is not yet on sale —
these files are published ahead of it.
Closing the DealTwo defensible bridges 20.70 million apart, a peg worth 7.00 million, and the six choices that remove 6.60 of a 12.00 earn-out.
CMBS and CRE CLOsWhere the loss actually lands, from appraisal reduction to realised severity, and what the B-piece is really being paid for.
How to Read a Commercial LeaseThe three refinements chapter 19 names and never performs, and the renewal rate below which the mark-to-market is worth nothing.
How to Read a Credit AgreementWhere the default actually comes from, the cure that costs 5.5 times the other, and the capacity nobody adds up.
How to Read a Real Estate Loan AgreementThe cure ratio in closed form, the four-point window in which the cheap cure works, and the cure sized to the wrong threshold.
Office Real EstateA six per cent yield that returns 3.2 per cent once the re-letting cycle is paid for, and the headline-to-net-effective rent arithmetic.
Private Equity Real EstateBoth worked waterfalls to the dollar, the two capital stacks, and the arithmetic of the promote made changeable.
Private Markets PerformanceThirty-one of the thirty-three figures chapter 19 publishes reproduce exactly — and the two that do not are named rather than quietly adopted.
Raising a Real Estate FundThe chapter 17 funnel run on a calendar — when the first close actually lands, and why more travel does not help.
Real Estate FinanceFour people look at one building and reach four numbers; the lender is whole only above 105,109,489, twelve per cent below today’s value rather than forty.
Real Estate Financial ModelingProperty, development and fund models built line by line, and the modelling test worked end to end.
Real Estate Fund ManagementThe waterfall of 6.11, the build-to-core of 8.7 and the proceeds gap, reproduced as live formulas rather than asserted.
REIT Analysis and ValuationFFO of 532.0, AFFO of 381.0, net asset value and dividend safety — every figure a formula you can change.
Retail Real EstateThe occupancy cost of every unit in a centre, the sixteen per cent of the rent roll no tenant can sustain, and the right-size-convert-or-hold decision priced.
Sale and LeasebackA €179.5 million transaction end to end, with rent cover measured on the entity that actually signs the lease.
Self-Storage Real EstateThe cohort engine behind a 590-unit store, and the rate increase on existing customers priced against the move-outs it causes.
The Fund Finance ProfessionalChapter 8 builds the reported-to-eligible NAV bridge; chapter 9 computes every ratio without it. Two points at every state — and what a subscription line does to the IRR.
The Growth Equity InvestorWhat a pro rata cheque really costs, and the band where defending your ownership loses money.
The Private Credit InvestorThe two coverage ratios are not measured on the same thing: the erosion is 47.7 per cent, not the 28.7 the headline implies.
The Private Equity Fund Controller PlaybookThe book defines IRR, DPI, RVPI and TVPI, tells you to update them at the exit, and prints not one value. Computed: a 1.833× deal inside a fund at 0.892 TVPI.
The Venture Capital AssociateWhat defending a position costs, and how many companies a reserve pool actually defends.
Financial Risk ManagementA fund inside every limit that cannot meet a redemption — and the number that decides it is the one with no currency attached.
Business ValuationThree advisers land 26.8 per cent apart on one company, and the whole gap turns out to be 1.96 points of perpetual growth.
Quantitative FinanceThree models agree to a quarter of one per cent about a number that one unobservable input moves a hundred and three times as much.
Asset ManagementFour people quote four returns for one mandate, all correct and 2.7017 points apart — forty-eight times the manager’s net skill.
Alternative InvestmentsA manager reports 13.29 per cent and the endowment earns 6.26 — both correct, and only a third of the advertised advantage arrives.
Credit AnalysisFour defensible EBITDAs on one borrower give leverage from 3.19x to 6.47x — and the add-back argument is fifty times the covenant headroom.
Venture CapitalOne company out of twenty-eight returns 56.7 per cent of the fund, and half the capital goes in after the decision — at half the return.
Machine Learning for FinanceFive people quote the accuracy of one credit model, all five are right, and the number that decides how much money it makes is none of them.
Commercial Real Estate InvestingThe equity earned 8.6647 per cent and the investor received exactly 8.0000 — the preferred return, and nothing above it.
Mergers and AcquisitionsThe board paper says the deal creates 13,436,667 of value. The arithmetic says it destroys 17,530,855. Nobody is lying.
DerivativesThe treasury report says the hedge cost 1,233,698. That is the interest differential, not a cost.
Treasury ManagementFive cash balances for one company, all correct and 145,600,000 apart — and the revolver that is two-thirds of the liquidity leaves at a revenue fall of 8.4127 per cent.
Financial Planning and AnalysisRevenue 3.0190 per cent above budget and operating profit 16.3209 per cent below it, in the same quarter, with every figure correctly stated.
Energy TradingA position report that is 91.7031 per cent hedged and correctly computed, on a book that is short 2,542,000 MWh — and a margin call of 198,400,000 the next morning.
Construction Cost ControlA contract sum of 26,301,102 became a final account of 29,153,363 on the building that was drawn — and 85.8 per cent of what was lost was knowable on the day it was signed.
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