Real Estate Finance and Development Syllabus Course Description This course will provide participants with a general understanding of real estate finance and development with an emphasis on affordable housing development. The course uses case studies to help illustrate concepts and their applications. Participants will become familiar with the tools and the language of real estate finance and affordable housing development. By the end of the course students will be able to conduct feasibility analyses of potential real estate projects that measure both the economic and social benefits of the project. The first half of the course is focused on providing participants with a basic understanding of the terms and techniques used to finance real estate projects and evaluate their economic benefits. The remainder of the course is focused on developing a working knowledge of the development process. Course Materials The first half of the course requires that you have a working knowledge of Excel applications. At a minimum you should have a financial calculator such as the Hewlitt Packard 10BII. Preferably you can bring a laptop to class so that you can manipulate data as we work through concepts. The course requires that you access Harvard Business School s Case Studies. They are available on line at www.hbsp.harvard.edu. You can register as a student and get the cases for 50% off. If you have a problem please let me know. In addition, there are readings from texts that I will make available for you. Course Projects The course has three major projects. The first is the Angus Cartwright III case study. This will show how effectively you have learned the basic concepts of real estate finance. The second, the mid term project, is the Silver Lane Apartments affordable housing application and scoring. This will show how effectively you have learned the concepts of affordable housing finance. In addition to preparing an affordable housing application you will review the application of one of your classmates and prepare a report which scores the application according to the criteria described in the Massachusetts Qualified Allocation Plan. To facilitate this project, there are two assignments that are designed to prepare you for the mid term project. Preparing the 10 year operating proforma and the development proforma will be the basis for the mid term project. The final project is to write a case study of a real estate development project. The study will include a description of the project including photos, detail its development and
operating cash flows, interviews with project team members and residents, describe the benefits of the project and conclude by describing which part of the development process this project could have focused on more to increase the product. Course Grading There are seven assignments that are outlined below. The first 2 assignments are intended to set you up for the mid term assignment and are ungraded. Twenty percent of your grade will be based on class participation. Assignment Description Date Due % of Grade Prepare a 10 year operating proforma for Silver Lane 2/3/10 0% Apartments utilizing specific assumptions provided. Prepare a development proforma for Silver Lane Apartments 2/10/10 0% utilizing specific assumptions. Complete the HBS Case Angus Cartwright III 2/24/10 15% Introduce affordability to Silver Lane Apartments development 3/10/10 15% and operating proformas. Prepare One Stop Application based on the proformas. Review and score your assigned projects according to the 3/17/10 15% Massachusetts QAP. Draft outline of final project. 3/31/10 5% Final project. 5/5/10 30% January 27, 2010 Class Overview and Intro to Real Estate Finance (Part 1) Objective To clarify syllabus, materials required, and class assignments and projects. To demystify real estate finance and provide participants with the basic vocabulary necessary to discuss real estate. In Class Activity: Review syllabus and assignments; review materials required for class; discuss how to hand them in; discuss grading; begin real estate finance terms; begin developing operating proforma. Reading Assignments for 2/3/10 Harvard Business School s (HBS) Case: Silver Lane Apartments. Bennett L. Hecht s Developing Affordable Housing: A Practical Guide for Nonprofit Organizations, Chapter 4, Project Feasibility and TDC and Chapter 5, Determining Project Income and Expenses. Activity Assignment due 2/3/10 Prepare a 10 year operating proforma for Silver Lane Apartments utilizing specific assumptions provided. February 3, 2010 Intro to Real Estate Finance (Part 2) Objective Understand the information required to calculate debt capacity such as rental income, operating expenses and sales prices. In Class Activity Review the HBS Case Silver Lane Apartments. Discuss the importance of the operating proforma as it relates to value.
Reading Assignments for 2/10/10 Read HBS Case Study Introduction to Accumulated Value, Net Present Value and Internal Rate of Return Activity Assignment due 2/10/10 Prepare a development proforma for Silver Lane Apartments utilizing specific assumptions. February 10, 2010 Debt and Equity (Part 1) Objective Provide participants an understanding of how to calculate debt capacity and equity requirements. In Class Activity Discuss cash flow analysis for rental property and prepare a sources and uses for homeownership project. Utilizing the cash flow analysis from previous class, determine debt capacity, loan to value, projected sales value in 10 years utilizing a capitalization rate. Activity Assignment due 2/24/10: Complete the HBS Case Angus Cartwright III February 17, 2010 Debt and Equity (Part 2) Objective Provide the participants with the tools necessary to perform sensitivity analyses. Also provide students with an understanding of how real estate is valued including loan to value (LTV), internal rate of return, net present value and capitalization rate. In Class Activity Manipulate renta l income and operating expenses to det ermine the affect on debt capacity and LTV. Manipulate sales prices of homeownership project. Reading Assignment for 2/24/10 Hecht s Developing Affordable Housing, Chapter 6, Raising Capital, Chapter 7, Sources of Capital Loans, Chapter 8, Sources of Capital Grants, Chapter 11, Enhancing the Feasibility of the Affordable Housing Project Section 4 Increasing Income and Section 5 Reducing Operating Income. February 24, 2010 Financing Tools Available for the Production and Maintenance of Affordable Housing (Part 1) Objective Famil iarize participants with the tools used to produce affordable housing and to maintain affordability over time while introducing the constraints to the programs. In Class Activity Review the application of affordability programs and introduce the various program guidelines. Discuss how these guidelines help increase or decrease the level of affordability for projects. Reading Assignment for 3/3/10 HBS Case Studies The Holland House and The Nehemiah Strategy: Bringing it to Boston Hecht s Developing Affordable Hous ing, Chapter 9, Sources of Capital Equity and the Commonwealth of Massachusetts Qualified Allocation Plan (QAP). Activity Assignment due 3/10/10 Introduce affordability to Silver Lane Apartments development and operating proformas. Prepare One Stop Application based on the proformas. March 3, 2010 Financing Tools Available for the Production and Maintenance of Affordable Housing (Part 2)
Objective Familiarize participants with the Low Income Housing Tax Credit program particularly in Massachusetts. In Class Activity Guest Speaker reviews the intricacies of the LIHTC program especially in the current environment. Reading Assignment for 3/10/10 Mike E. Miles et. al. Real Estate Development Principles and Process Third Edition Eight Stage Model of Development. Hecht s Developing Affordable Housing, Chapter 2, The Real Estate Development Process for Nonprofits An Overview. HBS Case Studies Revere Street and 503 Cricket Road. March 10, 2010 The Development Process Objective Provide participants with an overview of the real estate development process and the understanding that the process is neither linear nor predictable. Activity Review and discuss the case studies and compare them to the Eight Stage Model of Development in Mike E. Miles et. al. Real Estate Development Principles and Process Third Edition. Reading Assignment for 3/17/10 HBS Cases Jason Bosworth and Anderson Street. Activity Assignment due 3/17/10 Review and score your assigned projects according to the Massachusetts QAP. March 17, 2010 Project Feasibility Objective Provide participants with the understanding of the different analyses required to determine whether a project is feasible including financial and social benefit. In Class Activity Develop an outline for a feasibility study based on the eight stage development process, the financial analysis and any real or perceived social benefits. Develop a predevelopment budget for Silver Lane Apartments and identify potential sources. Reading Assignment for 3/31/10 Hecht Developing Affordable Housing, Chapter 3, Establishing the Development Team Mike E. Miles et. al. Real Estate Development Principles and Process, Chapter 3, Developers and their Partners. Activity Assignment due 3/31/10 Submit draft outline of final project. March 31, 2010 Putting the Team Together Objective Provide participants with a general overview of each of the roles of the development team and general criteria for selecting team members. In Class Activity Review the team members selected for the affordable Silver Lane Apartments. Discuss potential similarities and differences in teams depending upon the existence of an affordable component. Reading Assignment for 4/7/2010 Boston Redevelopment Authority s Article 80 and the Citizen s Guide to Article 80 April 7, 2010 Permitting and Approvals Objective Provide participants with an overview of the permitting process and its relevance to a real estate development process. In Class Activity Guest Speaker
April 14, 2010 Getting to Yes Objective Provide participants with a framework by which to view community process as it relates to real estate development in Boston in general and specifically in relation to affordable housing projects. In Class Activity Describe the community approval process in the Boston context and discuss its pros and cons of community process. Reading Assignment for 4/21/10 Hecht s Developing Affordable Housing, Chapter 19, The Project Completion Phase April 21, 2010 Site visits April 28, 2010 Managing Affordable Housing Objective Provide participants with the regulations and restrictions other than income that determine who lives in affordable housing and how to challenges with managing this type of housing. In Class Activity Understand the opportunities and challenges of managing affordable housing.