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: [email protected]
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
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