Objective/Outcome 1: Major Role of Real Estate

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1 Real Estate and Urban Economics Program Mission/Purpose The Bachelor of Science in Business with a major in Real Estate and Urban Economic Studies prepares students for real estate related employment by educating them in the theory and practice of real estate valuation, finance, investments and market analysis. Program Goals The goals of the Real Estate and Urban Economic Studies major include Core Business goals, as well as goals specific to the major. Core Business Goals: o Develop a general knowledge of accounting. o Develop a general knowledge of finance. o Acquire the skills for managing people. o Develop a general knowledge of marketing. o Develop a general knowledge of operations and information systems. o Develop a general knowledge of business law and ethics. o Acquire the skills for managing a business. o Communicate effectively. o Acquire skills for career management. Real Estate and Urban Economic Studies Goals: o Appreciate the role of real estate in the economy and the associated legal, economic and social institutions. o Understand the fundamentals of real estate investments and valuation. o Understand the operations and mechanics of real estate markets. Program Implementation: The learning objectives of the Real Estate and Urban Economic Studies program include both Core Business outcomes and Real Estate major specific outcomes. Real Estate Major Outcomes Real Estate majors will be able to: o explain the importance of real estate from the perspective of the consumer and investor, o explain the unique characteristics of real estate and the associated legal environment and economic institutions, o estimate real estate value and rates of return, o apply analytical tools to real estate investments, and o evaluate real estate markets. Performance Objective/Outcome 1: Major Role of Real Estate 1/6

2 Students will be able to explain the importance of real estate from the perspective of the consumer and investor. Presented in FNCE 3230 This topic is presented in lecture and reinforced throughout the course. Specifically, in FNCE 3230, we emphasize the importance of real estate to consumers by emphasizing the following: o Shelter expenses account for more than one third of the typical household budget o Real estate accounts for roughly 25% of the average household total assets and even more when one looks at the median household o More the two thirds of all households own their home today and when broken down by age category, the homeownership rate for older households is well above that level There is a sizeable differential in homeownership across different races within the US o Changes in house prices have a significant impact on household net wealth We emphasize the importance of real estate as an investment by discussing o The size of real estate assets relative to other investment classes o The split of real estate investment into equity and debt components o The fact that mortgage backed securities are the largest sector of the fixed income market The fact that problems in this sector were one of the major contributing factors in the recent financial markets crisis o The recent track record of real estate in terms of risk/return tradeoff Since most students in the class have not studied investments prior to the class, this discussion needs to be at a general level. The main fact I hope students take away is that real estate investments are not highly correlated with other investment classes and thereby are desirable for their diversification benefits. o The nature of the market for investing in real estate specifically the public v. private markets split Assessed with a handson Objective/Outcome 2: Major Legal Environment / Economic Institutions Students will be able to explain the unique characteristics of real estate and the associated legal environment and economic institutions. Presented in FNCE The unique characteristics of real estate arise throughout the course. They are first presented in week 2 of the course, but are re emphasized in the sections dealing with the role of government in real estate (e.g., laws covering conveyance of real estate, recording laws, describing real property rights, local building codes and zoning), the valuation of real estate, the risks of investing in and lending for real estate. Main points we expect students to recall include o Immobility (fixed in location) o Heterogeneity (uniqueness of each parcel) o Interdependence (importance of externalities) o Large size (lumpy investments) o Inelastic supply (greater sensitivity of prices to demand/supply shocks) These unique factors are first presented in Chapter 2, but we emphasize in lectures how these characteristics 2/6

3 have shaped the legal and institutional environment in the United States. For example, we discuss how these characteristics have shaped the institutions for proving title (e.g. why the title system for real property differs from that for personal property such as automobiles) and especially the need for local planning and zoning rules. They also influence the investment characteristics and valuation as well as the role of government. The unique nature of the U.S. mortgage market and dependence on GSEs is emphasized late in the course when mortgage financing is covered. The uniqueness of real estate and the role of these factors is emphasized through working on problem 1 of problem set 1. In discussing various answers, we emphasize the fact that the price of most goods are similar in different markets (e.g., cars, electronics, clothing) but that real estate values can vary by a factor of 5 10 times just between West Hartford and Greenwich. The immobility of real estate is pointed out to be the main reason that the markets are so local. The effect of inelastic supply is also emphasized in the problem and subsequent discussion. The interdependence of real estate property will be emphasized later in the course (week 4) as part of the discussion of planning and zoning as well as in valuation models with a hands on Objective/Outcome 2: Major Legal Environment / Economic Institutions Students will be able to explain the unique characteristics of real estate and the associated legal environment and economic institutions. Presented in FNCE The unique characteristics of real estate arise throughout the course. They are first presented in week 2 of the course, but are re emphasized in the sections dealing with the role of government in real estate (e.g., laws covering conveyance of real estate, recording laws, describing real property rights, local building codes and zoning), the valuation of real estate, the risks of investing in and lending for real estate. Main points we expect students to recall include o Immobility (fixed in location) o Heterogeneity (uniqueness of each parcel) o Interdependence (importance of externalities) o Large size (lumpy investments) o Inelastic supply (greater sensitivity of prices to demand/supply shocks) These unique factors are first presented in Chapter 2, but we emphasize in lectures how these characteristics have shaped the legal and institutional environment in the United States. For example, we discuss how these characteristics have shaped the institutions for proving title (e.g. why the title system for real property differs from that for personal property such as automobiles) and especially the need for local planning and zoning rules. They also influence the investment characteristics and valuation as well as the role of government. The unique nature of the U.S. mortgage market and dependence on GSEs is emphasized late in the course when mortgage financing is covered. The uniqueness of real estate and the role of these factors is emphasized through working on problem 1 of problem set 1. In discussing various answers, we emphasize the fact that the price of most goods are similar in different markets (e.g., cars, electronics, clothing) but that real estate values can vary by a factor of 5 10 times just between West Hartford and Greenwich. The immobility of real estate is pointed out to be the main reason that the markets are so local. The effect of inelastic supply is also emphasized in the problem and subsequent 3/6

4 discussion. The interdependence of real estate property will be emphasized later in the course (week 4) as part of the discussion of planning and zoning as well as in valuation models with a hands on Objective/Outcome 2: Major Legal Environment / Economic Institutions Students will be able to explain the unique characteristics of real estate and the associated legal environment and economic institutions. Presented in FNCE The unique characteristics of real estate arise throughout the course. They are first presented in week 2 of the course, but are re emphasized in the sections dealing with the role of government in real estate (e.g., laws covering conveyance of real estate, recording laws, describing real property rights, local building codes and zoning), the valuation of real estate, the risks of investing in and lending for real estate. Main points we expect students to recall include o Immobility (fixed in location) o Heterogeneity (uniqueness of each parcel) o Interdependence (importance of externalities) o Large size (lumpy investments) o Inelastic supply (greater sensitivity of prices to demand/supply shocks) These unique factors are first presented in Chapter 2, but we emphasize in lectures how these characteristics have shaped the legal and institutional environment in the United States. For example, we discuss how these characteristics have shaped the institutions for proving title (e.g. why the title system for real property differs from that for personal property such as automobiles) and especially the need for local planning and zoning rules. They also influence the investment characteristics and valuation as well as the role of government. The unique nature of the U.S. mortgage market and dependence on GSEs is emphasized late in the course when mortgage financing is covered. The uniqueness of real estate and the role of these factors is emphasized through working on problem 1 of problem set 1. In discussing various answers, we emphasize the fact that the price of most goods are similar in different markets (e.g., cars, electronics, clothing) but that real estate values can vary by a factor of 5 10 times just between West Hartford and Greenwich. The immobility of real estate is pointed out to be the main reason that the markets are so local. The effect of inelastic supply is also emphasized in the problem and subsequent discussion. The interdependence of real estate property will be emphasized later in the course (week 4) as part of the discussion of planning and zoning as well as in valuation models. 4/6

5 3230 with a hands on Objective/Outcome 4: Major Application of Analytical Tools to real estate investments. The assessment of this learning objective may be conducted in either FNCE 3332 or FNCE The first course focuses on the analysis of equity investments in real estate especially commercial real estate while the second focuses on investment in debt secured by real estate. In both courses, the analysis of investments requires students to calculate rates of return of typical investment opportunities and to assess the overall attractiveness of the investment opportunity considering the risk/return tradeoff. In both courses, there are three major components required to apply analytical tools: 1) Identifying and forecasting the important cash flows; 2) applying analytical tools to determine the expected returns from the investment and 3)assessing the attractiveness of the investment taking into consideration the riskiness of the ed cash flows, alternative investments and other factors or 3333 based on 3332 or 3333 with a hands on Objective/Outcome 3: Major Value and Rates of Return 5/6

6 Students will be able to estimate value and rates of return. The assessment of this learning objective will be conducted in FNCE The actual assessment will be based on a valuation (month long, outside of class conducted in groups) and final exam s that require students to determine the value of a real estate investment today and the investors expected rate of return based on 3332 with a hands on Objective/Outcome 5: Major Evaluation of Real Estate Markets Assessment will be conducted in FNCE 3334 through a asking students to discuss details of supply and demand for a specific subject property in a given local market with a hands on 6/6