Lecture 1: Introduction to Real Estate Finance

1. Lecture 1: Introduction to Real Estate Finance byJames R. DeLisle, Ph.D.January 5, 2010

2. Lecture Overview • Course Organization • Critical Thinking • The Economic Problem: an Example in Critical Thinking • Other Real Estate Trends/Issues • Real Estate Process Review

3. Course Overview • Course Background • Course Objectives • Timetable • Computer and Technology Requirements • Grading Strategy and Policy • Project Decision: Rationale and Alternatives • Organization of Real Estate Finance 2010 • Part 1: Residential Finance • Part 2: Commercial Property Finance • Part 3: Capital Markets • Part 4: Institutional Finance

4. Course Objectives • Foster Creative thinking and Problem-solving • Helping students Systematically think about financial decisions related to real estate • Develop ability to model a variety of financial decisions • Develop Understanding of Real Estate Financial Markets • Market fundamentals: products and processes • Market Decision-making: players and market drivers • Residential Finance & Income Property Finance • Construction and Development Finance • Cultivate Appreciation for Capital Markets • Sources and Uses of Capital • Capital Flows to Real Estate • Private Market • Public Market • Develop 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 • Argus Decision-support

5. Finance and Investments Text • Hard Copy • Brueggeman and Fisher, Real Estate Finance and Investments, 13th Edition, Irwin, (2008) • On-line Resources • General Resources • Excel Spreadsheet with selected examples from Chapter problems. • Argus Data Files & Argus Free Trial Link • Chapter Resources • New Articles and Weblinks. A listing of Internet resources • Quizzes. A series of 10 questions per chapter with automatic grading. • PowerPoint Presentations.

6. Supplemental Materials • Cases and Review material from Real Estate Process • Time Value of Money & Primer on Mathematics of Real Estate Finance,” (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 (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 • Argus Guides/Portfolio Case Studies • A Guide to Argus • Case Study in Argus • Glossary of Real Estate Finance Terms

7. Course Organization: Grading Policy • Grading Philosophy • Basis: curved • Emphasis: achievement vs. process/speed • Metrics • 4 Multiple Choice/Matching Quizzes & calculated quizzes on fundamentals of real estate finance • 2 Mortgage Spreadsheet Modeling: fixed rate and variable rate mortgages • 2 DCF Modeling: Enhancement to Excel model with rent roll, partnerships and portfolio integration • 2 Argus Cases. Argus Model for an individual project and a portfolio project. • 1 Final Exam. Individual paper in which students explore a contemporary issue in real estate finance • Grading Components • Quizzes 4 24% • Financial Modeling: Mortgages 2 20% • DCF Modeling 2 30% • Argus/Portfolio Decision Support 2 20% • Final Exam 1 10% • Class Participation and Forum 6%

8. Course Objectives • Develop a conceptual understanding of: • Real estate market at the macro and micro levels, • Linkages between the spatial and capital markets, • Integration of property, asset and portfolio management, and • Roles, drivers, and decision-making processes of major classes of space users, producers, and investors. • Cultivate an appreciation for: • Sustainable development, operation, transaction and investment, and • Integrate related disciplines to support real estate decision-making with the appropriate breadth and depth of inquiry. • Be able to make decisions drawing on: • Industry best practices, academic and theoretical concepts, and an • Understanding of basic technical and analytical tools.

9. How we Got Where we Are?

10. Critical Thinking

11. Feasibility Analysis: Critical Problem Solving

12. Legal Elements of Real Estate

13. Players and Perspectives

14. Land Use Controls

15. Parcel Research

16. TRCm

17. Money-Time Dimension of Real Estate Value

18. Frontdoor Model

19. Backdoor Model

20. Social Responsibility Irretrievable Commitment Of Scarce Resources

21. Appraisal Objective and Process

22. Appraisal Theory and Application

23. Market Analysis

24. Market Segmentation & Product Stratification

25. Alternative Uses

26. H&B Use and Most Fitting Use

27. TMV

28. Risk Management

29. Mortgage Cycle

30. Mortgage Loans

31. Traditional Mortgage Amortization Patterns

32. DCF

33. Leases as Risk Management

34. Capital Market

35. REITs and CMBS

36. Portfolio Management

37. Development

38. Timetable as of 1/5/2010 Timetable: Part 1

39. Timetable: Part 2