Finance 40710

Real Estate Valuation and Investment

11:00-12:15 MW

213 DeBartolo

Fall 2013

Instructor: Dave Hutchison

Office: 364 Mendoza

Office Phone: (574) 631-9084

Cell Phone: (616) 240-7830

Email: dhutchis@nd.edu

Office Hours: 10:30 – 11:30, 1:15 – 2:30 MWF or by appointment

General Course Objectives:

The objectives of this course are to introduce students to the methods of valuation and investment

analysis used in residential and commercial real estate. Emphasis will be placed on commercialreal estate applications. Note that issues in business ethics will be addressed “organically” as

they arise in other contexts.

Specific Leaning Objectives:

1) Understanding the factors that impact real estate value;

2) Application of the principles of financial economics to real estate valuation and financial

contracts; understanding market “cap” rates and discounted cash flow valuation methods

as used in real estate, as well as the relationship between the two;

3) Understanding the component pieces of commercial real estate net operating income and

 pro forma construction, both for existing properties and projects (development);

4) Evaluating real estate risks, including both operating and financial risks;

5) Understanding the foundations of real estate market analysis;

6) Application of principles to practice (case studies, software exercises)

Pedagogy: This course will be taught in a lecture/discussion format. Virtually every class will

 begin with an open discussion about a current event/topic, or an application of a text topic, taken

from the popular media (internet, newspapers, magazines). I would strongly recommend thatstudents come to class with current topics of their own to serve as the basis for class discussion.

Lecture outlines/notes prepared in Powerpoint files which will be available on-line in Concourse

in advance of class meetings. The lecture notes will serve as the foundation for what we do in

class. Class time will be used to discuss, reinforce, and expand upon the most important elements

of the text and notes. Material from readings and other sources assigned but not covered in class

are still student responsibilities !

Required Materials:

The required text for this course is: Real Estate Finance & Investments by Linneman, Linneman

Associates, 2011 (LI). Other very good texts include Commercial Real Estate Investments and

Analysis, by Geltner and Miller, and Real Estate Finance and Investments, by Brueggeman and

 

Fisher. Other readings will be made available electronically during the semester. We will use

internet sites regularly.

A financial calculator will be advantageous. I would recommend either the Texas Instruments

BA II Plus, or the Hewlitt Packard 10B. I have a short “tutorial” for the TI (the HP is similar)and I will make that available on line. You will need to be able to do some present value/annuity

math calculations in-class (on exams). These can be done with formulas, algebra, and an

ordinary calculator, hence the financial calculator is useful but optional.

Prerequisites:

Fin 30700 or equivalent is recommended but not required. There is an expectation that you

understand the basics of the time value of money and financial diversification.

Course Requirements and Grading (subject to revision):

Attendance and participation 15 Points

Homework/Quizzes/Case studies 60 Points

Midterm Exam 50 Points

Final Exam 60 Points

Total 185 Points

Attendance will be taken periodically at random. Quizzes will be announced at least 1 class

 period in advance and will be based primarily on readings. Grades will be “curved” and will

approximate grades in comparable finance courses. The Finance Department has established a

mean grade range of 3.0-3.4/4.0 for this course.

Academic Integrity:

Acts of academic dishonesty will be treated in accordance with the University’s Academic Code

of Honor. In general, acts of academic dishonesty involve claiming others’ work to be one’s

own or receiving “inside information” that results in an unfair advantage (e.g., prior knowledge

of exam questions). Copying homework or exam answers of other students constitutes academic

dishonesty. Study groups and other forms of student collaboration are welcome where

appropriate, however all submitted work must be the individual’s. If you have questions

regarding what is appropriate, please see me. Failure to abide by these standards will result in penalties consistent with the Honor Code.

Classroom Policies

There is only one general classroom policy – please be mindful of others. You are welcome to

ask questions or volunteer an opinion at any time in class, but please allow others the same

courtesy. Unless you are facing a potential emergency, please turn of cell phones before entering

class. Laptops are welcome for note-taking, but please do not use class time for email, instant

messaging, etc. Thanks!

 

Tentative Material Coverage (opt. = optional):

Aug. 28 Course Introduction – What is Real estate?

Sept. 2, 4 What is Real Estate (cont.)? The State of the Markets

Linneman, chapters 1, 2

“Emerging Trends in Real Estate 2012”, Chs. 1,3 (opt.),4 (opt), on-line

“NAR Economic Forecast” (Sept. 2012, opt, on-line)

“Housing and Economic Outlook” (Mid-year 2013 NAR , opt); “Commercial

Real Estate and Economic Outlook” (Mid-year 2013 NAR, opt)

Sept. 9, 11 Residential Real Estate – Value Factors, Appraisal, Price Bubbles

The Appraisal of Real Estate, The Appraisal Institute, Chapter 13 (on-line)

 

“Bubble Trouble: Not Likely” (opt.)

http://en.wikipedia.org/wiki/Real_estate_bubble  

Sep. 16, 18 Market Analysis

The Appraisal of Real Estate, The Appraisal Institute, chapter 9 (on-line)

“Market Conditions: A New Focus for Residential Appraisers” (on-line)

Sept. 23, 25 Commercial Real Estate - Leases and the Economics of Retailing:

Linneman , chapter 3

Lease abstracts (on line, opt.)

“The Evolution of Retailing in the U.S.” (on-line)

Sept. 30, Commercial RE Valuation Basics – Cap Rates and DCF:

Oct. 2, 7 Linneman, chapter 7 (prereq1 optional)Geltner and Miller Chapter 10 pages 201-213 (on-line)

“How Should Commercial Real Estate be Priced” Chapter 7 Supplement C (opt.

 but recommended)

Oct. 9, 14 Existing Structure Pro Forma Basics;

Linneman Chapter 4, 5

Linneman Chapter 4 Supplement A

Midterm Oct. 16

Oct. 21, 23 Spring Recess (!)

Oct. 24, 25 Eisenberg Foundation Career Day (www.EisenbergFoundation.org

 

)

Oct. 28, 30 Real Estate Development Pro Forma:

Linneman, chapters 8, 9

 Nov. 4, 6 The Use of Debt

 

Linneman, chapters 12, 13

 Nov. 11, 13, 18 Private versus Public Real Estate Markets:

Linneman, chapters, 10, 17, 18

“The NAV Debate”http://www.nareit.com/portfoliomag/05mayjun/feat2.shtml

 

 Nov. 20, 25 Real Estate in Mixed-asset Portfolios

Linneman, Supplement I

“Real Estate in the Investment Portfolio” (on-line, stats but not complex)

“The Game is Changing:….”

 Nov. 27 Thanksgiving Holiday

Dec. 2, 4 Corporate Real Estate

Linneman, chapter 19

“Real Estate Ownership by Non-real Estate Firms” (on-line, opt. some stat.)

“History of Corporate Real Estate from a Management Perspective” (on-line)

Dec. 9 Guest Speaker – Mike Cook, Investment Office

Dec. 11 Final Exam Review

Dec. 17 Final Exam – 4:15