Syllabus for Real Estate Finance: URBDP 554

James R. DeLisle, Ph.D. Real Estate Finance, Winter 2010 Syllabus for Real Estate Finance: URBDP 554

Professor: James R. DeLisle, Ph.D. [email protected] Office: (206) 616-2090

Office Hours: TR 1:30-2:30, or by appointment Rm 410 G Gould Hall

Class: Gould Hall: Rm 322 TTh 3:30-5:20 Periodic Friday Labs: to be announced as needed Moodle Real Estate Finance 2010 Website

Additional Support: Marc Weigum [email protected]

Overview: This course provides students with an overview of real estate finance and investment analysis. The course is designed to lay a solid foundation that will allow students to calculate the financial implications of various real estate decisions. Where appropriate, new trends and industry issues will be incorporated including a discussion of affordable housing, mixed-use projects, and sustainable development. This material covers such topics as basic time value of money, financial leverage, discounted cash flow analysis of individual properties, capital flows, and institutional portfolio management. The course also covers such items as: the implications of macroeconomic factors on real estate; the structure and operation of the real estate capital markets; the major participants in the market; and, the various financial structures and products that can be used to develop, manage and/or transact real estate in a viable, financial feasible and sustainable manner.

Course Objectives: There are several main objectives for this course including: • Fostering creative thinking, modeling and problem-solving related to real estate finance. – Systematically think about financial decisions related to real estate – Develop an ability to model a variety of financial decisions • Developing an understanding of real estate fundamentals and finance including: – Market fundamentals: products and processes – Market Decision-making: players and market drivers – Residential Finance & Income Property Finance – Construction and Development Finance • Cultivating an appreciation for the impact of capital markets including: – Sources and Uses of Capital – Capital Flows to Real Estate – Private Market – Public Market • Developing individual and team-based problem solving skills – Emerging Trends: class discussion of emerging issues and trends – Financial modeling: team-based modeling and application of appropriate tools • Excel Modeling http://jrdelisle.com James R. DeLisle, Ph.D. Real Estate Finance, Winter 2010

• Argus Decision-support

Prerequisites: Students must have completed URBDP 552, Real Estate Process or obtain a waiver based on prior training, skills, and a willingness to work on remedial materials to ensure they have the proper foundation. I have placed a copy of the textbook for RE Process entitled 'Real Estate Principles: A Value Approach' on reserve in the College of Built Environments library. Please skim through the book to get a better understanding of some of the background materials. Along the same lines, please visit my website http://jrdelisle.com and review the Cases & Tutorials for Real Estate Principles.

In terms of skill sets, students are expected to have a basic understanding of computers and the Internet, as well a working knowledge of Excel (tutorials will be provided). Basic “mathematics of real estate” and other investment tutorials and references will be made available as background and support materials and are located in the Cases & Tutorials section of my personal website. Students may also be provided additional materials or be asked to attend laboratories to ensure they have a proper foundation and the tools necessary to succeed in the class.

Course Materials

Text. Clauretie & Sirmans, Real Estate Finance: Theory and Practice, 6th Edition, Irwin, (2010); assignments in the syllabus are designated Ch. (for Chapter). The text includes an extensive list of on-line resources that can be accessed at: Cengage Learning On-line. The Student Materials, to which this link points, provides a number of useful resources.

Supplemental Material: . Cases and Tutorials from Real Estate Process (see: http://jrdelisle.com890-=):  “Time Value of Money & The Mathematics of Real Estate Finance,” (DeLisle)  Cases (DeLisle) . Case 1: Building Envelope . Case 2: Total Replacement Cost . Case 3: Frontdoor/Backdoor Analysis . Case 4: Alternative Use Analysis . Case 5: Discounted Cash Flow . Problems in Real Estate Finance  Problems in Real Estate Finance (hyperlinked files) . Problem Set 1: Basic Time Value of Money . Problem Set 2: Basic Mortgage Finance . Problem Set 3: Intermediate Mortgage Finance . Problem Set 4: Basic Corporate Real Estate Decisions  Guides . A Guide to Argus . A Guide to Argus Portfolio  Glossary: A proprietary JRDeLisle Glossary containing: . Over 4,200 words searchable by phrase . An alphabetic listing of terms in the glossary. .

2 James R. DeLisle, Ph.D. Real Estate Finance, Winter 2010

. Additional readings/tutorials will be assigned to supplement the textbook. Materials will be available in electronic and/or hard copy formats; students should refer to WebCT for updated list of assignments.

Computer/Technology Requirements and Integration

. Excel: Over the past several years, the course has migrated toward more Excel instruction and support to help students develop fundamental spreadsheet and advanced financial modeling skills. While some of the calculations will use built-in functions, basic equations will be presented to allow students to refine spreadsheets and conduct sensitivity and scenarios analyses. . Computer Skills and Access: students must have access to a computer and have a working understanding of Excel. In addition, students should have access to PowerPoint or comparable software for presentation of their final projects. . Internet & e-mail Access: students must have access to the Internet; high speed access will be optimal for some applications; software requirements will be restricted to a current browser (i.e., Internet Explorer or Netscape), as well as Adobe Acrobat Reader which is available for free. . Moodle: The course will be managed and organized in part using my personal Moodle account to provide a technology-enhanced learning experience. Students will be able to access course materials and lectures through the Moodle interface using any Internet access point. Some quizzes, discussion participation and other graded items will be managed via Moodle. . Argus: The textbook incorporates Argus, by reference and by example. Students have two options. First, they can use remote access via the Citrix Server where updated versions of Argus 14 should be available by mid-quarter. Second, they can purchase a license for version 14 for academic use for $99. This latter option will allow installation on a laptop and provide access to a fully functional version although there are some limitations. Details will be provided in class. Students majoring in real estate or anticipating real estate careers are encouraged to obtain their personal copies.

Course Administration

Method of Instruction: The course will consist of a combination of traditional classroom lectures and technology-enhanced instruction. Technology enhancements will cover a number of media ranging from supplemental streaming video/audio presentations to web-enabled administration and support via Moodle (see: Computer/Technology Requirements and Integration above for access requirements). Classes will include lecture, discussion, problem-solving and team formats. Internet-based discussion forums, self- assessment quizzes and other appropriate technological elements may be used to further enhance the learning experience. Students will also participate in a research project as part of their grade. The bulk of these research projects, which will be undertaken on a team basis, will be completed outside of class.

Readings, Preparation and Participation: The reading assignments, problems, cases and discussion forums are an integral element of the course. Students are expected to complete readings and other assigned work prior to the classes in order to follow and participate in the discussion. Learning is approached as a participatory process, benefiting from student/teacher and student/student interaction. The instructor will provide lecture notes and other learning materials on a periodic basis through his personal website or the Moodle server. All testing will be processed through Moodle.

Quizzes/Examinations: There will be a series of short “deliverables” during the quarter –approximately one per week—that will assess understanding of basic concepts, financial models and decision-making.

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 Four (4) Multiple Choice/Matching Quizzes & calculated quizzes on various elements of real estate finance  Two (2) Mortgage Spreadsheet Modeling: fixed rate and variable rate mortgages  Two (2) DCF Modeling: Enhancement to Excel model with rent roll, partnerships and portfolio integration  Two (2) Argus Cases. Students will develop an Argus Model for an individual project and a portfolio project.  Final Exam/Paper. The final exam will be an individual project in which students explore a contemporary issue in real estate finance drawing from a list of issues.

Make-up Exams/Project Extensions: Make-up exams are discouraged, although efforts will be made to accommodate legitimate schedule conflicts. The use of Moodle as a testing vehicle should provide sufficient spatial/temporal flexibility to avoid time conflicts. Prior notification of conflicts with assignments or special needs is required. Extensions or accommodations must be approved in advance.

Attendance Policy: To provide a rich, rewarding, interactive learning environment, students are expected to attend and actively participate in classes. A portion of the final grade will be based on class participation and project presentations. Students are responsible for all materials covered in class or assigned, regardless of actual attendance.

Grading: Final grades will be based on aggregate point totals for exams, quizzes and research projects. Grades will be curved to provide a balance of intellectual challenge and academic reward. In particular, the following grading system will be applied.

Quizzes 24% Financial Modeling: Mortgages 20% DCF Modeling 20% Argus/Portfolio Decision Support 20% Final Exam 10% Class Participation & Forum 6%

Withdrawal Policy. Students desiring to withdraw from class or classes must follow the procedure appropriate for the period of time in the quarter.

Academic Honesty/Code of Conduct: Students are expected to adhere to the code of conduct for the University of Washington. Due to reliance on Moodle-based assessment, students are cautioned to ensure that their submissions reflect their own work. Students are expected to adhere to the UW’s code of conduct. Students are advised to refer to UW policies and procedures to ensure their safety and security on campus. For more information, go to: http://www.washington.edu/safecampus/ To report threats, seek advice, or get counseling, dial 206-685-SAFE (7233).

Timetable: Please note that additional readings, assignments and due dates will be posted in Moodle and announced in class. The general calendar is as follows although it is anticipated that deviations may be necessary to customize the learning experience to the demographics of the class. As noted, there will be a textbook and assigned readings, most of which will be electronically available.

4 James R. DeLisle, Ph.D. Real Estate Finance, Winter 2010 Timetable as of 1/5/2010 Wk Topic Chapter Readin Quizzes/Projects Problem Sets/Due Dates gs/Case Out s 1 Course Ch 1: RE Finance Overview DeLisle, Review Cases: located in Overview and No Moodle Process Review Process Bottom, Review No Net Graaska mp, Finance Educ. & Risk Manage ment Capital Ch 2: Money, Credit and Rates; Ch 3: Finance 2010 Prob Set1: Basic Time Value Markets & Theory & RE Emergin of Money Real Estate g Trends; DeLisle: RE Asset Class or Sector? 2 Financing Ch 4: History of Res Finance; Ch 5: Postwar DeLisle, Mortgage Project Notes & Residential Finance Primer 1 Base Mtgs. Out; Mortgages 1: Res. Quiz 1 Out Mortgag e pgs 1- 48. Residential Ch 6: Alternative Mortgages DeLisle: Prob Set 2: Intro to Mortgage Mortgage Primer Finance Loans 1: Alt Mortgage Project 1 Due Mortgag es pgs 48-72. 3 Residential Ch 7: Financing and Property Value; Ch 8-9 DeLisle, Quiz 2 Out Prob Set 3: Intermediate Mtg Finance; Federal Housing Housing Project 2 Alt Fin; Quiz 1: Due http://jrdelisle.com James R. DeLisle, Ph.D. Real Estate Finance, Winter 2010 Housing Afforda Mtgs. Out Affordability bility Cost Study Underwriting Ch 13: Loan Orig; Ch 14: Mortgage Ins, Title Residential Insurance Property 4 Discounted Ch 19: Perm Financing Case 1: Mortgage Project 2 Due Cash Flow; FD/BD DCF Enhanced Investment Analysi Analysis s Case 2: DCF Analysi s Introduction To be assigned Primer Project 3: DCF Quiz 2: Due to Income 2: Rent Leases Out Prob Set 4: Intro Corp RE Property & Roll Leases Modelin g in Excel 5 Valuation of To be assigned Income Property Financial Ch 15 Value, Leverage Prob Set 5: Adv Corp RE Leverage & Alt. Financing 6 Risk Analysis Ch 12: Controlling Risk; Disposition/R To be assigned enovation Quiz 3: Out Project 3: DCF Leases Due Corporate RE Finance 7 Financing & Ch 18: ADC Loans Land Argus Model Tutorial Development Real Estate Ch 21: RE in a Portfolio Context DeLisle, Portfolio “A http://jrdelisle.com James R. DeLisle, Ph.D. Real Estate Finance, Winter 2010 Management Holistic RE Portfoli o Mgmt.” 8 To be assigned Primer Proj. 4: Argus RR- 3: DCF Argus Out Project Analysi s JVs, Ch 20: Ownership Proj. 5 Argus Project 4: Argus RR-DCF Syndications, Portf Partnerships, olio: Out 9 Public Equity Ch 17: Sources of Funds Quiz 4: Out Market

Secondary Ch 10: Secondary Market Market: Pass- Throughs 10 Secondary Ch 11: Valuation of RE Securities Primer Final Out Market: 4: CMOs, Argus CMBSs Portfoli o Analysi s Issues in RE Ch 22: Liability, Fraud and Ethics. Project 5 Argus: Due Finance Quiz 3: Due 11 Finals Week Final Exam Final Due 3/21

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