Real estate finance and investment

Lectures: 2 sessions / week, 1.5 hours / session

Recitations: 1 session / week, 1.5 hours / session

This course is an introduction to the most fundamental concepts, principles, analytical methods and tools useful for making investment and finance decisions regarding commercial real estate assets. As the first of a two-course sequence, this course will focus on the basic building blocks and the "micro" level, which pertains to individual properties and deals (as distinguished from the "macro" level that pertains to portfolio, firm level, and investment management considerations - the macro level will be covered in 11.432 next spring).

This course will consider investment in both "stabilized" (fully operational) income properties, and development investments. Our perspective will be that of so-called "institutional" real estate decision-making (e.g., pension funds, REITs, banks, life insurance companies), regarding large-scale commercial property. At this level it is important to integrate the perspectives of "Wall Street" (the mainstream securities investments and corporate finance establishment) and "Main Street" (local, traditional real estate business community). This requires a treatment of real estate investment rigorously integrated with, and built upon, the modern corporate finance and investments perspective as taught, for example, in the Brealey-Myers text in the Sloan introductory finance theory curriculum (15.401). However, a key objective of this course is to recognize the unique features of real estate that distinguish it from so-called "mainstream" securities investments and corporate finance.

In addition to twice-weekly lectures, there will be weekly recitation classes. These will be used to review the material presented in lecture and the text, and in some cases as extensions to the class to allow more complete coverage of case and project assignments. With one exception, problem sets will not be required or graded. The recitation instructors will present cases and other project assignments. The teaching assistants will serve as the graders (with appeals to the primary instructor). Recitation attendance is advisable for most students, but is mandatory only when cases are being discussed during these sessions.

The grade will be based on two exams, and four case assignments. Cases will be done in student groups (self-selected, non-repeating) of usually three students each. Some practice problem sets have also been prepared, which will generally not be required or graded (with one exception). Problem sets are recommended for practice to insure mastery of the lecture and text material and as preparation for the exams. Problem sets will be discussed by the TA during recitations when answer sheets will be handed out and made available in the assignment section. Overall course grading will be approximately as follows:

Geltner, David M., Norman G. Miller, Jim Clayton, and Piet Eichholtz. Commercial Real Estate Analysis and Investments. Cincinnati, OH: South-Western Educational Publishing, 2007. ISBN: 9780324305487.

Students will be required to buy a student version of the Argus real estate analysis software.

A financial calculator is required, of a type that can do discounted cash flow and internal rate of return calculations (DCF, IRR). The Hewlett-Packard HP-10B will be used for in-class examples.

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