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 commercial real 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 that students 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 Homework/Quizzes/Case studies Midterm Exam Final Exam Total 15 Points 60 Points 50 Points 60 Points 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 Universitys Academic Code of Honor. In general, acts of academic dishonesty involve claiming others work to be ones 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 individuals. 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 Sept. 2, 4 Course Introduction What is Real estate? 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) 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) 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) Commercial RE Valuation Basics Cap Rates and DCF: 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) Existing Structure Pro Forma Basics; Linneman Chapter 4, 5 Linneman Chapter 4 Supplement A Oct. 16 Spring Recess (!) Eisenberg Foundation Career Day (www.EisenbergFoundation.org) Real Estate Development Pro Forma: Linneman, chapters 8, 9 The Use of Debt

Sept. 9, 11

Sept. 23, 25

Sept. 30, Oct. 2, 7

Oct. 9, 14

Midterm Oct. 21, 23 Oct. 24, 25 Oct. 28, 30

Nov. 4, 6

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:. Thanksgiving Holiday 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) Guest Speaker Mike Cook, Investment Office Final Exam Review Final Exam 4:15

Nov. 27 Dec. 2, 4

Dec. 9 Dec. 11 Dec. 17