PORTFOLIO THEORY AND INVESTMENT ANALYSIS

Portfolio Theory and Investment Analysis



Portfolio Theory and Investment Analysis

Introduction

An investment is an outlay of money or other fluids of financial resources, in order to obtain net profits in the future. The company must invest to the increased volume of stock of the company or in assets either to improve or enhance the production process or management. The investment analysis will also have to consider the risk of it, which is expressed by the volatility of the NPV or the likelihood that you cannot meet the expenditures required to continue the project. Usually this analysis is performed using a sensitivity analysis.

This paper will discuss the allocation and assess the investment potential of at least 3 income producing properties over a 10 year holding period.

Discussion

Market and Portfolio Appraisal

Real estate development and property subdivision

Commercial real estate development and subdivision activities account for about 30.0% of industry revenue, making it the largest segment in the UK Commercial Real Estate industry. Typically, development firms acquire land, obtain financing and construct buildings and other structures that add value to the premises. Firms than sell these projects or retain them as assets, allowing them to generate income overtime. Most construction activity is outsourced to contractors through a bidding process. After a developer awards a project to the builder, the general contractor is generally required to oversee all aspects of the project from quantity surveying, material purchase, skilled labor and subcontractor recruitment and construction to the lockup stage, which is the period before construction begins. The general contractor is expected to consult with project architects, financial providers and building regulators (Garrison R., Noreen E., Brewer P., 2009, pp. 71).

Major Market Segments

Office

Office accommodation can be differentiated by the type, style, age, condition, tenant identity and location of the property. These factors also affect the demand and the rental rates of the property. The office sector is often segmented into three general classes: A, B and C. Class A office spaces are generally characterized as buildings that are managed professionally and have high-quality tenants, an excellent location and high-quality building materials and common areas. These properties are often occupied by banks, high-priced law firms, investment banking companies and other high-profile companies.

Class B buildings are often slightly lower in quality and craftsmanship in comparison to Class A structures. Class B buildings are usually newer, wood-framed buildings or older, former Class A buildings. These buildings are also not located in "excellent" locations. Instead, Class B office buildings are often found in the suburbs or less-pricey business districts. Class C buildings are the cheapest buildings to rent and are typically 15-to-25 years old. Many Class C office spaces are not true office buildings. Instead, they consist of walk-up office spaces above retail or service operators (Heisinger K., 2010, pp.374).

Retail

The retail sector can be divided into shopping centers and non-shopping centers. Similar to office buildings, regional shopping malls can be categorized by property class. However, classes are determined by sales per square ...