BUS 135a REAL ESTATE AND SOCIETY FALL 2014 Meeting Times: Monday & Wednesday 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 F14 Syllabus 1 Michael H. Harrity 2014
BUS135a Fall 2014 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. COURSE MATERIALS I have created a course area on the Harvard Business Publishing website where you can order the required materials. Look for BUS135a Real Estate and Society F14. The Coursepack link is: https://cb.hbsp.harvard.edu/cbmp/access/28125137 Note that the case and articles in this coursepack are copyright protected, so each student MUST purchase their own coursepack and sharing the material from HBS Publishing is expressly prohibited. 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 www.adobe.com. 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 http://harvardbusinessonline.org I hope you find this a convenient way to access your course materials. File Name: BUS135a F14 Syllabus 2 Michael H. Harrity 2014
BUS135a Fall 2014 Syllabus page 3 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 techhelp@hbsp.harvard.edu I have also created an ebook on the McGraw Hill Irwin Create website where you can order other required reading. Information on access to this ebook is as follows: 1. Go to: https://create.mheducation.com/shop/ 2. Select the e-book via the following ISBN number: 9781308295961 3 Check to be sure it is the correct instructor and the correct title: BUS135a Real estate and Society F14, and 4. Add the book to your cart and pay using a credit card. 5. Illustrated instructions for acquiring your ebook are posted on LATTTE. This 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 assignments will be posted on LATTE OFFICE HOURS Adjunct Professor Harrity will be in his office Sachar #11C on Mondays 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. 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. File Name: BUS135a F14 Syllabus 3 Michael H. Harrity 2014
BUS135a Fall 2014 Syllabus page 4 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 30 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 F14 Syllabus 4 Michael H. Harrity 2014
COURSE OUTLINE - page 1 INSTRUCTOR: TEXT: Adjunct Lecturer Michael H. Harrity Required: e-book Required: HBS Publishing Articles and Cases, and LATTE posts # DATE CLASS TOPIC Reading, Discussion Topics and Assignments Due SECTION ONE REAL ESTATE: THE ASSET, THE MARKETPLACE AND THE LEGAL FOUNDATION 1 09/03/14-W INTRODUCTION Assignment: A building that inspires me.. (See LATTE) 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? 2 09/08/14-M 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 Locations, Location, locations- 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 09/10/14 W THE LEGL FOUNDATION ZONING, LIENS AND OTHER RESTRICTIONS Reading: HBSP Note: Forms of Real Estate Ownership & ebook Ch. 3- Government Controls and Real Estate Markets Public and Private Restrictions Liens and Assignments Government Involvement or Intervention? 4 09/15/14-M THE LEGAL FOUNDATION LEASES, AND TRANSFERS Assignment: Legal Highlights Memo Reading: HBSP Note: Tenant and Landlord Rights 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 Introduction to LEED File Name: BUS135a F14 Syllabus 5 Michael H. Harrity 2014
COURSE OUTLINE - page 2 5 09/17/14-W THE LEGAL FOUNDATION ENVIRONMENTAL REGULATIONS AND BUILDING GREEN Assignment: See LATTE - The Mandel Center for the Humanities Reading: HBSP Note: Environmental Law In Real Estate Transactions & HBSP Note: Rating Environmental Performance: LEED 6 09/22/14-M INTRODUCTION TO VALUATION METHODOLOGIES IN-CLASS QUIZ #1 CHARACTERISTICS OF REAL PROPERTY AND ITS LEGAL FOUNDATIONS Assignment: No written Assignment 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 09/24/14-W INTRODUCTION TO VALUATION METHODOLOGIES Assignment: No written Assignment Reading: ebook Ch. 6- Forecasting Ownership Benefits and Value: Market Research & Ch. 7- Valuation Using the Sales Comparison & Cost Approaches the Cost and Market Approaches to value Introduction to the Direct Capitalization Approach 8 09/29/14-M CAP RATES AND DISCOUNT RATES Assignment: What s your bid on this Waltham home? Reading: ebook Ch. 8- Valuation Using the Income Approach & Ch. 9- The Effects of Time and Risk on Value The Direct Capitalization Approach to estimating value What s in a Cap Rate? DCF and discount rates 9 10/01/14-W VALUATION EXERCISES Reading: see LATTE: Real Estate Financial Analysis Workbook Assignment: Complete the first 4 questions on P22 of the workbook Review the calculations for estimating Fair Market Value Bring your LapTop! File Name: BUS135a F14 Syllabus 6 Michael H. Harrity 2014
COURSE OUTLINE - page 3 10 10/06/14-M REAL ESTATE RESEARCH FOR PROPERTY VALUATIONS Guest Practitioner: Shaw Lupton PPR/CoStar Assignment: See LATTE Valuing a Waltham office building Reading: ebook Ch. 10- Investment Decisions: NPV and IRR More on DCF analysis Cap Rates and Discount Rates in a DCF evaluation 11 10/08/14-W INTRODUCTION TO MORTGAGE DEBT IN-CLASS QUIZ # 2 VALUATION Why borrow? The risks and rewards of leverage 10/13/14 - Monday A BRANDEIS THURSDAY SCHEDULE 12 10/15/14-W A PRIMER ON HOME MORTGAGES Reading: ebook: Ch. 11- Mortgage Calculations and Decisions & Ch. 12- 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 10/20/14-M MORE ON MORTGAGES AND MORTGAGE CALCULATIONS Assignment: Mortgage calculations Reading: Ch. 13- Sources of Funds for Residential Mortgages Discussion: Sample Commercial Debt Calculations Loan constant Cost of Capital Calculations 14 10/22/14-W COMMERCIAL DEBT UNDERWRITING - THE LENDER S VIEW Assignment: More mortgage calculations Reading: ebook Ch. 14- 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 F14 Syllabus 7 Michael H. Harrity 2014
COURSE OUTLINE - page 4 15 10/27/14-M A CASE STUDY IN FINANCING 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 10/29/14-W AFTER DEBT RETURNS IN-CLASS QUIZ #3 MORTGAGE DEBT Calculating expected returns on equity The two edged sword of leverage 17 11/03/14-M BUY VERSUS LEASE Assignment: HBSP Case - The Schneider Building Reading: See LATTE Calculating occupancy cost in a lease versus ownership Considering non-financial factors in decision-making 18 11/05/14-W AFFORDABLE HOUSING due Reading: EBook: Ch. 16- Sources of Commercial Debt and Equity Capital The whys and whats of affordable housing How do the numbers work? What governmental subsidies are available 19 11/10/14-M AFFORDABLE HOUSING Guest Practitioner: Larry Curtis The Winn Companies Assignment: Reading: See LATTE Loft 27 Doing well while doing good The Capital Stack Subsidies that close the gap between Value and Cost File Name: BUS135a F14 Syllabus 8 Michael H. Harrity 2014
COURSE OUTLINE - page 5 20 11/12/14-W MARKETING AND BROKERAGE IN-CLASS QUIZ #4 AFTER DEBT RETURNS ON EQUITY Marketing Real Property Brokerage practices and regulations 21 11/17/14-M MARKETING AND BROKERAGE Assignment: Beech Street Now What? Reading: ebook Ch. 15- Real Estate Brokerage and Listing Contracts Evaluating re-use alternatives Developing a marketing plan to meet the owner s objectives Housing for senior citizens a challenge and opportunity 22 11/19/14-W HOUSING FOR SENIORS Guest Practitioner: Kris Yetman Benchmark Senior Living: Assignment: See LATTE Reading: See LATTE A Senior housing case study Sources of income and categories of expenses 23 11/24/14-M REITs AND THE CAPITAL MARKETS FOR EQUITY IN-CLASS QUIZ #5 EVALUATING A PROPERTY PURCHASE Assignment: Sources of Capital for commercial debt and equity REITs 11/26/14-W Beginning of Thanksgiving Break NO CLASS 24 12/01/14-M REITs Assignment: A REIT Recommendation Reading: ebook Ch. 17- Real Estate Investment Trusts Teams present their REIT investment recommendations File Name: BUS135a F14 Syllabus 9 Michael H. Harrity 2014
COURSE OUTLINE - page 6 25 12/03/14-W PROPERTY AND ASSET MANAGEMENT Reading: ebook Ch. 18- Enhancing Value through Ongoing Management Maintaining and enhancing value through on-going management 26 12/08/14-Th REAL ESTATE DEVELOPMENT Assignment: An investment property I d like to buy Reading: ebook Ch. 19- 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 the date on which the registrar s office schedules the final exam. File Name: BUS135a F14 Syllabus 10 Michael H. Harrity 2014