A property valuation and financing comparison

A hypothetical property fund holds an asset valued at two hundred billion won and has debt of one hundred and twenty billion won. The exercise asks for loan-to-value and the change in equity value if the property value falls to one hundred and eighty billion won while debt remains unchanged. Transaction costs, tax, operating cash flow and new capital contributions are excluded from this immediate balance-sheet comparison. A salesperson says that a ten-percent property decline must mean only a ten-percent equity decline. The investor also expects immediate access to the entire investment, although the fund documents have not been reviewed. The adviser must explain leverage and the separate liquidity question.