BUS 135a REAL ESTATE AND SOCIETY FALL 2015 Meeting Times: Tuesday & Thursday 3:30 PM to 4:50 PM Meeting Place: Lemberg 054 Instructor: Adjunct Professor Michael Harrity harrity@brandeis.edu OVERVIEW This course serves as an introduction to the valuation, financing, and operations of incomeproducing real property in the United States and some of the societal issues surrounding the ownership, financing and regulation of real estate. With readings, case discussions and written assignments we will explore how investors identify projects, determine value, design marketing strategies, and obtain financing in the debt and equity markets. We will explore the intersection of private property rights and community regulations and responsibilities in real estate. LEARNING OBJECTIVES Recognize and evaluate the determinants of value: individual property characteristics, market conditions of supply and demand, capital market influences, public policy effects Be familiar with the legal and regulatory environment for real estate: land use regulations, property rights and limitations, leases, purchase contracts and closing. Understand the roles and responsibilities of the players in the marketplace Estimate the value of income-producing properties via the cost approach, the market (comparable property sales) approach and the income capitalization approach including both direct capitalization approach and a discounted cash flow analysis. Understand the sources of capital and the basics workings of the real estate capital markets Determine a basic capital structure for a property acquisition including the amount, cost, and other market terms for debt Explore societal challenges and opportunities that result from the inherent tension of individual versus communal rights and responsibilities File Name: BUS135a F15 Syllabus 1 Michael H. Harrity 2015
BUS135a Fall 2015 Syllabus page 2 PREREQUISITES BUS10a. ATTENDANCE AND PARTICIPATION COURSE REQUIREMENTS Class attendance is required and students are expected to be prepared to discuss the topics addressed by the readings. For many classes, there will be a case assigned and every student is expected to come prepared to discuss his/her solution to it in detail. Class participation is critical; to ensure an effective process, students are expected to use name cards at every session. Excellent attendance with no class participation results in a class participation grade of C+, but each absence after you two absences will result in a one-step reduction in this grading element (C+ to C, and so on). ACADEMIC HONESTY You are expected to be familiar with and to follow the University s policies on academic integrity (see http://www.brandeis.edu/studentaffairs/srcs/ai/justthink.html ). 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. 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 the instructor immediately to make appropriate arrangements. Please keep in mind that reasonable accommodations are not provided retroactively. WORKLOAD There are readings from the ebook, from posted articles and referenced websites required for almost every class. There are also written assignments due at least once per week. Like other 4- credit courses at Brandeis, it is expected that students will require on average at least 8 to 10 hours of work outside of class each week to satisfactorily complete both the readings and the assignments or to study for the quizzes. File Name: BUS135a F15 Syllabus 2 Michael H. Harrity 2015
BUS135a Fall 2015 Syllabus page 3 COURSE MATERIALS I have created an ebook on the McGraw Hill Irwin Create website. To purchase this e-book follow the instructions below. 1. Go to: https://create.mheducation.com/shop/ 2. Select the e-book via the following ISBN number: 9781308608471 You can also access the e-book by searching under your instructor s name Michael H. Harrity. 3 Check to be sure it is the correct instructor and the correct title: BUS135a Real Estate and Society F15, and 4. Add the book to your cart and pay using a credit card the cost is about $86.00. The ebook is made up of selected chapters from the text, Real Estate Principles: A Value Approach, Fourth Edition by David Ling & Wayne Archer; published by McGraw-Hill Irwin, 2013. ISBN#: 978-0-07-304621-1. You may find that a used copy of this text (either the third or fourth edition) is cheaper than the e-book. Other articles and the assignments will be posted on LATTE READING For each class, students will be called upon at the beginning of class to offer either: 1) A concept or comment from the reading that was of interest to the student; or 2) A connection between a concept from the readings and an observation or example of that concept that the student has experienced. In general, the concepts from the reading will be reviewed in the class to which they are assigned and students are encouraged to ask questions about concepts they don t fully understand. USE OF LAPTOPS IN CLASS To encourage every student s participation in class discussions and to avoid distractions, laptops are NOT to be open during class. There are two exception to this policy: 1) In some classes EXCEL formulae and spreadsheet analyses will be reviewed and the instructor will announce in advance that laptops should be brought to class for these reviews. 2) Students who wish to take class notes on their laptops may do so with the instructor s permission. At the end of each class the instructor will appoint at random one of the students who are laptop note takers to post their notes on LATTE. OFFICE HOURS Adjunct Professor Harrity will be in his office Sachar #11C on Thursdays from 1:00 PM to 3:00 PM and you can stop by during those hours without an appointment. You may also make an appointment during those hours or at other times that are mutually convenient. File Name: BUS135a F15 Syllabus 3 Michael H. Harrity 2015
BUS135a Fall 2015 Syllabus page 4 GRADING Students will be graded on their class participation, on written assignments, on five short in-class quizzes and on a Take-home Final Exam. The assignments may be individual assignments or team assignments. Unless otherwise indicated in the assignment instructions posted on LATTE, you are permitted to discuss the assignments with classmates but the work that you turn in should be your own or your team s own work. For example, if there is an excel calculation required for an assignment you can get assistance from your classmates but you should complete your own excel calculation on your own excel file. For team assignments you are encouraged to change the makeup of your team for each assignment. CLASS PARTICIPATION 15% (see Attendance & Participation above) Your grade will focus on your participation in discussions of the cases and assignments and will include your presentation of the case to which your team is assigned. You should keep a record of your participation, as I may ask for a written self-assessment at the end of the semester. WRITTEN ASSIGNMENTS 25% Assignment instructions will be posted on LATTE, generally one week prior to their due dates. Study indicates material that you will be expected to speak knowledgeably about if called upon in class, while Assignment indicates that a written analysis must be turned in, in hard copy, and signed, at the start of class. IN CLASS QUIZZES 25% There will be 5 in-class Quizzes for which you will need a calculator but which will otherwise be a closed book quizzes of approximately 35 minutes each. These quizzes may include short questions or problem sets on the materials that we have reviewed in class. TAKE HOME FINAL EXAM 35% There will be a take home final exam covering all of the topics discussed during the semester. This exam will be handed out at the last class and will be due at the time and on day the final exam is scheduled. The exam will require among other things that the student evaluate an income-producing commercial property and show the implications of debt financing on the return to an investor. The final exam itself must be returned along with the student s responses to it. Students may refer to their class notes, to the text and to other researched sources, but students may not confer with other students or any individual concerning the exam questions or any topics addressed in the exam. File Name: BUS135a F15 Syllabus 4 Michael H. Harrity 2015
COURSE OUTLINE - page 1 INSTRUCTOR: TEXT: Adjunct Lecturer Michael H. Harrity Required: e-book # DATE CLASS TOPIC Reading, Discussion Topics and Assignments Due SECTION ONE REAL ESTATE: THE ASSET, THE MARKETPLACE AND THE LEGAL FOUNDATION 1 08/27/15-Th INTRODUCTION Assignment: A building that inspires me.. (See LATTE) Reading: None Discussion What is Real Estate? What are the potential returns available to real estate investors? How does real estate compare with other classes of assets? Are there conflicts between private ownership rights and public interests? 2 09/01/15-Tu CHARACTERISTICS OF REAL ESTATE AND ITS MARKETPLACE Assignment: 5 Queries for a buyer.. Reading: ebook Ch. 1- The Nature of Real Estate and Real Estate Markets & Ch. 2- Legal Foundations to Value What are the characteristics of properties that contribute to value? How do these characteristics differ for different property types? What the characteristics of the real estate marketplace? How does the real estate marketplace differ from the marketplace for other investment assets? 3 09/03/15 Th THE LEGL FOUNDATION ZONING, LIENS AND OTHER RESTRICTIONS Reading: ebook Ch. 3- Government Controls and Real Estate Markets Public and Private Restrictions Liens and Assignments Government Involvement or Intervention? 4 09/08/15-Tu THE LEGAL FOUNDATION LEASES, AND TRANSFERS Assignment: Legal Highlights Memo Reading: ebook- Ch. 4- Conveying Real Property Interests & Ch. 5- Contracts for Sale and Closing Discussion Topics Lease contracts rights and obligations, gross and net Offers, due diligence and deeds Section 1 Review File Name: BUS135a F15 Syllabus 5 Michael H. Harrity 2015
COURSE OUTLINE - page 2 09/10/15 Th is a Brandeis Monday NO BUS135a CLASS 09/15/15 Tu is a Religious Holiday NO CLASSES 5 09/17/15-Th ENVIRONMENTAL REGULATIONS AND BUILDING GREEN IN-CLASS QUIZ #1 CHARACTERISTICS OF REAL PROPERTY AND ITS LEGAL FOUNDATIONS Assignment: No written Assignment Reading: See LATTE Environmental Regulations How do buildings and their use impact the environment? What is LEED? 6 09/22/15-Tu INTRODUCTION TO VALUATION METHODOLOGIES Assignment: See LATTE - The Mandel Center for the Humanities Reading: See LATTE How are income-producing properties valued? What are the factors contributing to value? What are the methodologies employed to estimate a property s value? 7 09/24/15-Th INTRODUCTION TO VALUATION METHODOLOGIES Assignment: No written Assignment Reading: ebook - Ch. 6- Valuation Using the Sales Comparison & Cost Approaches the Cost and Market Approaches to value Introduction to the Direct Capitalization Approach 8 09/29/15-Tu CAP RATES AND DISCOUNT RATES Assignment: What s your bid on this Waltham home? Reading: ebook Ch. 7- Valuation Using the Income Approach The Direct Capitalization Approach to estimating value What s in a Cap Rate? Discounted Cash Flow analysis and discount rates 9 10/01/15-Th VALUATION EXERCISES Bring Your LapTop Reading: Review e-book Ch. 6 & 7 and read Ch. 8 - Investments Decisions: NPV and IRR Assignment: See LATTE Review the calculations for estimating Fair Market Value Setting Up a Discounted Cash Flow spreadsheet File Name: BUS135a F15 Syllabus 6 Michael H. Harrity 2015
COURSE OUTLINE - page 3 10 10/06/15-Tu REAL ESTATE RESEARCH FOR PROPERTY VALUATIONS Guest Practitioner: TBA Assignment: See LATTE Valuing a Waltham office building Reading: Review ebook Ch. 6-8 More on DCF analysis Cap Rates and Discount Rates in a DCF evaluation 11 10/08/15-Th INTRODUCTION TO MORTGAGE DEBT Bring your LapTop IN-CLASS QUIZ # 2 VALUATION Reading: None Why borrow? The risks and rewards of leverage 12 10/13/15-Tu A PRIMER ON HOME MORTGAGES Bring your LapTop Reading: ebook: Ch. 9 - Mortgage Calculations and Decisions & Ch. 10- Residential Mortgage Types and Borrower Decisions Discussion: Home mortgage underwriting Mortgage calculations Characteristics of the home mortgage market Government support for home ownership and mortgage liquidity A look back at the 2008 Mortgage market meltdown 13 10/15/15-Th MORTGAGE CALCULATIONS Bring Your LapTop Assignment: Mortgage calculations Reading: Ch. 11- Sources of Funds for Residential Mortgages Discussion: Sample Commercial Debt Calculations Loan constant Cost of Capital Calculations 14 10/20/15-Tu COMMERCIAL DEBT UNDERWRITING - THE LENDER S VIEW Bring your LapTop Assignment: More mortgage calculations Reading: ebook Ch. 12- Commercial Mortgage Types and Decisions Loan Underwriting L-T-V and D-C-R Risk Assessment and Mitigation Loan Sizing and Pricing File Name: BUS135a F15 Syllabus 7 Michael H. Harrity 2015
COURSE OUTLINE - page 4 15 10/22/15-Th A CASE STUDY IN FINANCING Bring your LapTop Assignment: Note: Separate Handouts for Lenders and Borrowers See LATTE for case - Industrial Building Refinancing Reading: See LATTE Are the views of lenders and borrowers different? If so why? What are the basic underwriting issues and options? Are there special covenants that lenders can require to reduce risk? What is the meaning and impact of recourse? 16 10/27/15-Tu AFTER DEBT RETURNS Bring your LapTop IN-CLASS QUIZ #3 MORTGAGE DEBT Reading: None Calculating expected returns on equity The two edged sword of leverage 17 10/29/15-Th BUY VERSUS LEASE Assignment: To Lease or to Buy, that s the question.. Reading: See LATTE Calculating occupancy cost in a lease versus ownership Considering non-financial factors in decision-making 18 11/03/15-Tu SOURCES OF CAPITAL & AFFORDABLE HOUSING due Reading: EBook: Ch. 14 - Sources of Commercial Debt and Equity Capital Who are the providers of capital for real estate debt and equity? The whys and whats of affordable housing How do the numbers work? What governmental subsidies are available 11/05/15- Th - A Brandeis Holiday NO CLASS 19 11/10/15-Tu AFFORDABLE HOUSING Guest Practitioner: TBA Assignment: See LATTE Reading: See LATTE Doing well while doing good The Capital Stack Subsidies that close the gap between Value and Cost File Name: BUS135a F15 Syllabus 8 Michael H. Harrity 2015
COURSE OUTLINE - page 5 20 11/12/15-Th MARKETING AND BROKERAGE IN-CLASS QUIZ #4 AFTER DEBT RETURNS ON EQUITY Reading: ebook Ch. 13 Real Estate Brokerage and Listing Contracts Marketing Real Property Brokerage practices and regulations 21 11/17/15-Tu MARKETING AND BROKERAGE Assignment: Beech Street Now What? Evaluating re-use alternatives Developing a marketing plan to meet the owner s objectives Housing for senior citizens a challenge and opportunity 22 11/19/15-Tu HOUSING FOR SENIORS Assignment: Review A senior housing case study. Reading: See LATTE Guest Practitioner: Kathy Sweeny What is the case for building senior housing? What are the options of housing for seniors? What are the risks and potential returns for investors? 23 11/24/15-Tu REITs AND THE CAPITAL MARKETS FOR EQUITY due Reading: ebook Ch. 15- Real Estate Investment Trusts What are the sources of equity capital for real estate investments? What are REITs? 11/25/15 11/27/15 Thanksgiving Break 24 12/01/15-Th REITs Assignment: See LATTE A REIT investment recommendation Reading: Look at the website REIT.com for information on REITs What REIT stock investment does my team recommend? What are the reasons for this recommendation? What are the predicted returns over the recommended holding period? File Name: BUS135a F15 Syllabus 9 Michael H. Harrity 2015
COURSE OUTLINE - page 6 25 12/03/15-Th PROPERTY AND ASSET MANAGEMENT IN-CLASS QUIZ #5 EVALUATING A PROPERTY PURCHASE Reading: ebook Ch. 19- Enhancing Value through Ongoing Management Maintaining and enhancing value through on-going management 26 12/08/15-Tu REAL ESTATE DEVELOPMENT Assignment: An investment property I d like to buy Reading: ebook Ch. 20 - Development: The Dynamics of Creating Value Creating Value through property modification The Take Home final Exam will be handed out in this class and will be due on: Wednesday, Dec 16, 2015 12:00 Noon File Name: BUS135a F15 Syllabus 10 Michael H. Harrity 2015