A Practitioner's Guide to Obsolescence, Re-Leasing Economics, Repositioning and What an Office Building Is Actually Worth
Julian R. Sterling
A multi-let office is offered at €43.0 million on a 6.00 per cent net initial yield. Every line of
that calculation is correct, and it is not a return. Put the re-letting cycle back in and the same
building yields 3.20 per cent; run it for ten years and it is worth €32.6 million, against a valuation of €42.8 million
that is competently produced and answers a different question.
These are the workbooks the book was written from. Every figure the book prints is reproduced by
a live formula, and each model workbook ends with a sheet that compares the two line by line.
The files
Chapters 1, 5 and 6
The yield you are actually buying
The quoted net initial yield, the reversionary yield and the capital-adjusted yield on one sheet, with the fit-out cost, the void, the incentive and the letting fee as inputs you move. It computes the three yields — 6.00 per cent, 7.39 per cent and 3.20 per cent — and the fit-out level at which net income disappears (€1 121/m² per square metre per cycle).
A rent-free period, a fit-out contribution, agency and legal fees and a term certain, converted into the single number the owner actually banks — €163.8/m² of a €300/m² headline. It runs in both directions, so you can also solve for the headline you must achieve to deliver a net effective rent you are willing to underwrite.
Headline_to_Net_Effective_Rent.xlsx · XLSX · 9 KB
Chapters 11 to 15
The ten-year cash flow
The whole re-letting cycle, quarter by quarter, lease by lease: expiries, fit-out, voids, incentives, the dated energy capital call and the exit. Every cell is a formula. It is the model behind the €32.6 million valuation and the 4.32 per cent internal rate of return at the asking price.
The_Ten_Year_Cash_Flow.xlsx · XLSX · 31 KB
Chapters 17 and 18
Refurbish, reposition, convert or sell
The four-way comparison, with the residual land value calculation for a residential conversion and the two thresholds at which comprehensive repositioning becomes the right answer — a post-works rent of €403/m², or works at €525/m².
The eighty questions of Appendix A as a live checklist, in the same order, from the same source file as the chapter. Columns for the answer, the source document, the owner and the date; the status column marks any question answered without a source as unsourced.
Blue on pale blue is an input you may edit. A yellow fill is the carrying assumption of
the sheet — the one to argue about first. Black is a formula. Nothing is locked, protected
or watermarked. There are no macros and no external links.
Each model workbook ends with a sheet called Checks: the figure as the book prints it,
the figure the workbook computes, the variance and a status. If a line ever reads
“to check”, the workbook and the book have drifted apart — and the workbook is
right.
Three numbers to compute on your own building
The capital-adjusted yield — 3.20 per cent here, against a quoted 6.00 per cent.
The share of value sitting in the exit — 74 per cent here. Above roughly two
thirds you are not buying income, you are buying a view about the next buyer.
The distance to the income cliff — today's fit-out as a share of the
level at which net income reaches zero. 37 per cent here.
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.
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 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.
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.
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. The number that mattered appears in no report at all.
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.
If this book helped — or didn’t — a few lines on Amazon are worth more than they look: they are what the next reader goes on. Write a review. The workbook stays free either way.