CAPITAL MARKETS Valuations


Here, Capital Markets refers to yield generating assets like multifamily residential complexes. Generally, these assets form part of core investment strategies for large institutional investors such as pension funds and Investment Trusts.

Business Case

Practical valuations for yield generating assets in real estate Capital Markets

Yield generating assets as the name suggests, are sought after for their ability to yield consistent cash flow to owners. Hence income capitalization approach is the primary valuation method utilized to determine fair value.

European Residential Real Estate Investment Trust or ERES REIT is a Europe focused residential property investor. The REIT is an active investor in the European multi-residential complexes and listed on Canada’s stock exchange with a market capitalization of close to CAD 1 billion

ERES as part of its business operations, repeatedly invests and divests assets. In September 2019, it acquired a portfolio of 1,257 residential units across 26 properties in the Netherlands for Euro 232 million. The Majority of the portfolio was acquired from a competing Real Estate investment Trust – CapREIT.

To value the residential portfolio through the income capitalization approach, we will first calculate the annual gross yield

From gross yield, we will deduct operational expenses to arrive at the net yield or net operating income received in hands of the landlord. Here we will assume ERES’s NOI margin is applicable to the property portfolio.

The average cap rate for residential properties in the Netherlands is 4%. Applying which we get a property value of Euro 230 million.


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