SCHOOL OF BUSINESS AND ECONOMICS 2016/2017

BLOCKBOOK

REAL ESTATE INVESTMENT AND VALUATION

An Application of Real Estate Finance

Code: EBS2033

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Blockbook
Real Estate Investment and Valuation
School of Business and Economics
Maastricht University

Academic Year 2016/2017

1. Introduction
Real estate is an important part of institutional investors’ portfolios. The real estate market
plays a vital role in the economy as it is the largest asset market. Moreover, the investment
characteristics of real estate differ from those of other asset classes like stocks and bonds.
Consequently, valuation techniques specifically designed for real estate are particularly
interesting to study. In addition, real estate is much more than a financial product. Real estate
is visible in our daily life and affects all of us!

Since real estate can´t move, a lot of its value is determined by location, requiring investors to
consider neighbourhood, city or country developments that affect location values. Through
zoning restrictions, industry clusters or social-economic characteristics, a location determines
the building type and usage (e.g. residential vs. industry areas). Furthermore, preferences for
locations differ among tenants. Therefore, the right type of property at the right spot,
addressing the right tenant, can make a big difference in value!

As you can imagine, it is extremely difficult to value real estate properly, if that is even
possible. In contrast to stocks or bonds, information availability is low and the personally
attached value to a building differs widely. The skills course Real Estate Investment and
Valuation deals with the practical application of valuation techniques for real estate. This
course provides students with an introduction to the field of real estate finance, and the skills
needed to synthesize and implement information needed for real estate valuation in Microsoft
Excel. Furthermore, students learn to deviate from fixed solutions and to think outside the
box. In addition, students are trained to give presentations and write valuation reports in a
professional manner.

Please Note: The workload in this course considerably high for a skills course. However, you
will be rewarded with a steep learning curve both in soft skills and hard skills. In addition, we
constantly offer interesting internship opportunities for excellent performing students.

The block will be taught by Mike Langen, MSc (m.langen@maastrichtuniversity.nl). All

communication is done via e-mail.

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2. Organization of the Course
The course consists of five tutorial meetings and two lectures. We start with an introductory
lecture, explaining how the real estate economy and the real estate market work and we learn
why valuation of real estate is so complex. In the first tutorial, we make sure students
understand the concepts of the real estate economy and introduce different valuation
techniques. Furthermore, we set the stage for the case and form subgroups. In the second
tutorial, sub-groups submit and present their analysis setup in Excel. We will spend some time
clarifying issues and answering questions. In the third tutorial, we add more complexity and
assumptions to the case and discuss alternative valuation methods. In the fourth tutorial, we
provide a last opportunity to answer case questions. We will discuss current trends in real
estate and how investors can use them. Next, we will have a guest lecture with two speakers.
Just Pereboom from OVG Real Estate will present us the big view and trends real estate. Arne
Bongenaar from ACTEEUM Group, will talk about the work of a private developer, focusing
mainly on retail buildings. In the final meeting, sub-groups will present their investment
analysis and hand in their report. This will all be done in a case competition style
environment.
Students are assigned to 4 or 5-person subgroups during the first tutorial meeting. These
subgroups play an important role throughout the course. Subgroups are responsible for the
preparation and presentation of the case during the case discussion meetings. Each subgroup
must hand in their spreadsheets, and prepare a presentation for the cases. All subgroup
members are expected to take part in the case presentation. A final written assignment of the
case must be handed in at the end of the course. For all meetings, the relevant literature should
be thoroughly prepared and USED for preparing the cases.
There is a lot of literature to read for this course. Please focus on the most important concepts,
since literature is just for your understanding. Students should understand the market
mechanisms and factors playing a role in the market. Furthermore, students should be familiar
with terminology and concepts of real estate valuation and investments. In addition, it is
expected that all students know how to prepare an investment analysis in Excel, including
basic concepts such as NPV and DCF. If you lack understanding of these concepts, please
read the optional literature. In any case, please skim the optional literature. If you know about
all the concepts already, you do not have to read it. Most of the content was covered in
previous courses already. If you feel unsure you are urged to read the optional literature!

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3. Case Goal
Goal of the case is to develop an understanding for real estate valuation and being able to
carry out an investment analysis. The heart of the case is the Excel analysis. Therefore, sub-
groups are asked to set up their analysis in a structural and adjustable way as soon as possible.
After the first discussion of the analysis setup, we will add assumptions and increase the level
of complexity. You should show flexibility and be able to adjust your case. In the fourth
session, just 2 days before submission, we will talk about trends in real estate. Students should
be able to react to the discussed topics and implement them in the case somehow.
In addition to the hard skills of a real estate investment analysis, students will learn many soft
skills, which are essential for work (life). In addition, to Excel, writing and presentation skills,
students learn to work with assumptions and adapt their work based on new information.

4. Grading
Students will be awarded a pass or fail at the end of the block, based on their contributions in
class, their solutions to the case as represented by the spreadsheet work (25% weight), the
presentations of the case (25% weight) and the final written assignment (50% weight). In the
final meeting, each sub-group must present their results and hand in a 3000-word (maximum)
valuation report on the case assignment. The report should be handed in through safe
assignment as well as in hard copy in the last tutorial meeting. Please submit the report to safe
assignment on EleUM no later than 23.59 PM at the day of the last meeting, a hard copy
should be brought to class. Please note that all meetings during the skill course are mandatory.
Failure to comply will result in a course assignment.

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5. Schedule

Monday (19.06): Opening Lecture

Mandatory Literature: Ch. 2 Geltner et al. (2007)

Learning Goals: - Get an overview of the real estate economy

- Understand the market mechanisms
- Introduction to valuation methods
- Course outline / Case introduction

Tuesday (20.06.): Tutorial 1:

The real estate market / Introduction valuation
Mandatory Literature: Ch. 6, 7, 8 Ling and Archer (2010)
Ch 6, 7 Geltner et al. (2007) – focus on concepts!

Optional Literature: Ch. 10 Geltner et al. (2007) – focus on concepts!

Learning Goals: - Understand the real estate market and how

- Understand how to prepare an investment analysis
- Kick-off meeting case
- Form sub-groups

Friday (23.06.): Tutorial 2:

Discuss Spreadsheets
Optional Literature: Ch. 10 Geltner et al. (2007)
Ch. 7, 8 Benninga (2006)
Please familiarize yourself with the concepts of financial
investment decisions (should be known from Finance 1.5)

Learning Goals: - Discuss spread sheets and crucial considerations of the case
- Make sure all sub-groups have a basic analysis ready
- Give feedback on analysis so far, clarify questions
DUE: Spreadsheet case assignments

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Monday (26.06.): Tutorial 3:
Advanced valuation considerations / Tenant choice
Mandatory Literature: Ch. 8 (incl. Appendix) Brown & Matysiak (2000)
Ch. 12 Geltner et al. (2007)
http://blog.winkbuild.com/blog/six-helpful-tips-to-find-a-buyer-
for-your-commercial-property
https://www.realcommercial.com.au/news/how-to-choose-the-
right-building-for-your-business
http://www.telegraph.co.uk/finance/property/property-
club/10143372/finding-commercial-property.html

Learning Goals: - Understand advanced factors to consider

- Discuss further methods to backup analysis
- Understand Tenant choice

Wednesday (28.06.): Tutorial 4:

Trends in Real Estate
Mandatory Literature: Eichholtz et al. (2010) – Focus on concept and results
Huizenga et al. (2006) – Focus on concept and results
Deloitte (2017)
Fitch (2015)
Alton (2017)
http://www.c2c-buildings.org/projects/city-hall-venlo/

Learning Goals: - Learn about:

Green building, healthy building, C2C
- Learn about new financing trends
- Learn about shared office concepts

Thursday (29.06.): Guest Lecture

Background Literature: to be announced

Friday (30.06.): Tutorial 5:

Final presentations / Case submission
Presentations of the Case assignment including feedback
DUE: Written report Case assignment

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6. References
Alton, L. (2017). Why More Millennials Are Flocking To Shared Office Spaces. Retrieved
from: https://www.forbes.com/sites/larryalton/2017/05/09/why-more-millennials-are-
flocking-to-shared-office-spaces/#70469ca269e8

Benninga, S. (2006). Principles of Finance with Excel. 1st edition. Oxford University Press.

Brown, G.R., Matysiak, G.A. (2000). Real Estate Investment, a Capital Market Approach.
Pearson Education Limited.

Deloitte. (2017). Real Estate Predictions 2017 – What Changes lie ahead. Retrieved from:
https://www2.deloitte.com/nl/nl/pages/real-estate/articles/real-estate-predictions-2017.html

Eichholtz, P., Kok, N., & Quigley, J. (2010). Doing Well by Doing Good? Green Office
Buildings. The American Economic Review, 100(5), 2492-2509. Retrieved from
http://www.jstor.org/stable/41038771

Fitch, S. (2015). Is Crowdfunding About To Massively Disrupt The Real Estate Industry.
Retrieved from: https://www.forbes.com/sites/stephanefitch/2015/07/02/land-
rush/#1ee7c0f10816

Geltner, D.M., Miller, N.G., Clayton, J., Eichholtz, P. (2007). Commercial Real Estate,
Analysis and Investments. 2nd edition. Cengage Learning.

Huizenga, C., Abbaszadeh, S., Zagreus, L., & Arens, E. A. (2006). Air quality and thermal
comfort in office buildings: results of a large indoor environmental quality survey.
Proceeding of Healthy Buildings 2006, 3.

Ling, D.C., Archer, W.R. (2010). Real Estate Principles, a Value Approach. 3rd edition. Mc-
Graw Hill/Irwin.