REAL ESTATE FINANCE
FIN 225f (2)
Fall2014
Monday & Wednesday, 11:00pm – 12:20 pm
Location: Lemberg 54
Edward Chazen, Senior Lecturer
Sachar 208
(781) 736 4825
OVERVIEW
This course serves as a follow-on to BUS 235f, Real Estate Fundamentals, with a focus on debt and equity financing of income-producing real property, primarily in the U.S. market. Using case discussion, lectures, problem solving exercises,simulation of negotiation and guest speakers, the course considers real estate finance from the perspective of the users of capital (developers and property owners) and the sources of capital (lenders and equity investors). The primary student outcome is the ability to analyze a real estate financing for debt and equity, discuss and present a professional financing request for debt and equity, and understand how to structure a financing of a commercial real estate property.
LEARNING GOALS & OUTCOMES
Understand the sources and uses of real estate capital: characteristics, pricing, structuring of termsand risks of different components of the real estate “capital stack”
Be familiar with the underwriting and basic business terms of each type of real estate financing: construction loans, permanent loans, joint ventures, hybrid debt-equity financing, REITs and CMBS
Estimate the financing capacityand metrics of income-producing propertiesvia a cost basis, direct capitalization approach and a DCF analysis
Understand the relationship between leases, cash flow and property financing
Understand the modeling of cash flow projections and its role in structuring property financing
Determine a basic capital structure and legal issues for financing a property acquisition;gain an understanding of loan work-outs and borrower-creditor rights
PREREQUISITE: BUS 235f. (No exceptions!) Highly recommended is FIN 202a, either taken beforehand or concurrently with this course.
COURSE REQUIREMENTS
Required Reading
There are three HBS cases andoneHBS notethat you will need to buy. I will post on LATTE two casesstudy I wrote(one is a written case study assignment) and interesting articles about thefinancing of commercial real estate.
Students will be required to purchase selected chapters from Real Estate Finance and Investments, 14th edition, BrueggemanFisher published by McGraw-Hill Irvin.The selected text chapters provide helpful supplemental reading for the class lectures. Follow these steps to purchase the eBook from the publisher. The cost is $28; it will save you about $100 compared with purchasing the entire text book – which you do not need for this course.
- Go to
- Search for and select book by Title, ISBN, Author, or State/School.
- ISBN: 9781121981232
- Title: Real Estate Finance
I have established the following coursepack with HBS Publishing; look for Real Estate Finance 2014. This is where you can purchase the HBS cases and Note required for the course.
If you have not registered with Harvard Business Online, you will be required to do so. Electronic course materials are in PDF (Portable Document Format) and should be viewed with Adobe Reader, available free at Students can access PDF files of course materials via a link on Harvard Business Online for six months from the date of purchase. You will have immediate access to the materials upon placing your order, for subsequent access, you must login to I hope you find this a convenient way to access your course materials.
For technical assistance, please view the Quick Tips section or contact HBS Publishing at 1-800-810-8858 or 617-783-7700, from 8am-6pm.They can also be reached at
Attendance and Participation
Class attendance is required. Class participation is critical; to ensure an effective process, students are expected to use name cards at every session. For five(5) classes there will be a case assigned and every student is expected to come prepared to discuss it in detail.
Academic Honesty
You are expected to be honest in all of your academic work. Instances of alleged dishonesty will be forwarded to the Office of Campus Life for possible referral to the Student Judicial System. Potential sanctions include failure in the course and suspension from the University. For the University policy on academic honesty, please see section 5 of the Rights and Responsibilities Handbook.
Disabilities
If you are a student with a documented disability on record at Brandeis and wish to have a reasonable accommodation made for you in this class, please see me immediately. Please keep in mind that reasonable accommodations are not provided retroactively.
Grading
Students will be graded on their class participation, homework assignments, mid-term exam and written case study assignments.
CLASS PARTICIPATION* 20%* (see asterisk below)
* You are expected to attend every class. Attendance will be taken and unexcused absences will result in a reduction in your Class Participation grade. Please do NOT schedule job interviews during class time, nor should you commit yourself to outside internships or Brandeis IBS club activities that conflict with your class responsibilities. Excellent attendance, with noclass participation, results in a class participation gradeof C+. If you ask good questions and offer interesting comments you can earn a higher grade. I will randomly call on students to encourage broad class participation, so be prepared.
HOMEWORK ASSIGNMENTS (5% each) 15%
MID-TERM EXAM20%
The mid-term exam will include material we cover during the first 7 classes, and will require use of Excel-based computations. We will practice these prior to the actual exam.
WRITTEN ASSIGNMENTS45%
Millegan Creek Apartments(15%)
Five and Six Dulles Station(15%)
Burlington Woods Office Park(15%)
COURSE MATERIALS
TEXT BOOK
Real Estate Finance and Investments, 14th edition, BrueggemanFisher
HBS CASES
Millegan Creek Apartments(9-395-118)
Five and Six Dulles Station(9-210-047)
Bourland Companies(9-395-151)
HBS NOTE
Technical Note on Financial Leverage in Real Estate
CHAZEN CASES(posted on LATTE)
Burlington Woods Office Park
Sunshine Ridge Apartments
ARGUS
ARGUS is a sophisticated financial analysis program that allows users to analyze and forecast cash flows of all types of commercial real estate. It is very useful to prepare scenarios of different assumptions in a cash flow projection. Most jobs in the real estate industry suitable for recent MBA graduates require familiarity with Argus and it typically is asked at job interviews.You can advance your job prospects if you are familiar with Argus.
Brandeis will offer an Argus classon Friday, November 7th and all students are encouraged to register. Your only cost is $99 to purchase a 6 month (optional) software license to use Argus on your personal computer. The instructor works for Argus and the class will start at 9 am and end at 4:30 pm. Further registration information will be available closer to the Argus class date.
COURSE OUTLINE
study guides and/or assignments for each class are posted on LATTE
Graded case studies are in bold type font
DATECASE/READINGSTOPIC
10/22Brueggeman & Fisher,Introduction to real estate finance
Chapter 2, pp 16- 25;Common real estate finance terms
10/27Bruggeman & Fisher, Underwriting a financing
Chapter 11, pp 352-362Analysis in real estate finance
Technical Note on Financial Leverage in Real Estate
Homework: 2 problem sets
10/29Case: Bourland CompaniesLong term property financing
11/3Bruggeman & Fisher, Construction loans
Chapter 16, pp. 508-540Risks in financing development
Homework: 2 problem sets
11/5Case: Millegan Creek ApartmentsConstruction financing
11/10No readings assignedGuest speaker;Matthew Osborne
Senior VP, Eastern Bank
11/12Bruggeman & Fisher,Joint ventures and hybrid debt/equity
Chapter 12, pp. 396-410financing
Chapter 18, pp, 579-588
Homework: 2 problem sets
11/17Mid-Term Exam
11/19Case: Five and Six Dulles StationStructuring a joint venture
11/24Articles on LATTEPublic debt and equity real estate market
12/1Bruggeman & Fisher,Distressed debt and loan workouts
Chapter 2, pp 26-39
12/3Case: Burlington Woods Office ParkRe-structuring a distressed property
12/8Case: Sunshine Ridge ApartmentsDebt and equity for value investing
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