Concepts and techniques for analyzing financial decisions in property development and investment. Topics: leasing and property income streams, pro forma analysis, equity valuation, tax analysis, options, risk, and the financial structuring of real property ownership. 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 and investment management considerations - the macro level will be covered in 11.432 next spring). While we will touch on real estate development in this course, we will focus here on "stabilized" (fully operational) income properties. (Financial analysis of real estate development will be covered in more depth in 11.432.) 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. 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.
The evolving organization and operation of real estate capital markets. Sources of real estate capital. Primary and secondary mortgage markets. The investment behavior of real estate assets. The development of REITs and securitized debt markets. Advanced pricing techniques for complex real estate securities. This course presents some of the major concepts, principles, analytical methods and tools useful for making investment and finance decisions regarding commercial real estate assets. As the second in a two-course sequence, this course focuses on more advanced topics and the "macro" level, which pertains to decisions about collections of many individual real estate assets, that is, portfolio or firm level decisions and investment management considerations. (More fundamental "micro" level analysis, pertaining to individual properties and deals, is covered in 11.431 taught in the fall semester). This course also introduces and surveys the major public capital market real estate vehicles, REITs and MBS. Other topics treated include a selection among such subjects as real options, land valuation, development project financial analysis, corporate real estate, capital structure, portfolio strategy, equilibrium pricing of asset classes, investment performance measurement and benchmarking, investment management, and international real estate investing (not all subjects covered every semester).
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