Advanced Topics in Real Estate Finance R Thursdays 6:30 9:30, JKP 104

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1 University of Southern California FBE 570 Marshall School of Business Professor Barry Landreth Finance, Business Economics Spring 2006 Advanced Topics in Real Estate Finance R Thursdays 6:30 9:30, JKP 104 INSTRUCTOR ACCESS Professor: Barry Landreth Telephone: TBA Office: HOH 700F Office Hours: TBA & By Appointment COURSE DESCRIPTION & PREREQUISITES Current topics in real estate finance including sources of equity and debt, the role of capital markets, REITs, conduits, portfolio analysis, and acquisition of distressed assets. Cases and analytic methods. Prerequisite: GSBA 521 or GSBA 548; recommended preparation: FBE 591 COURSE OVERVIEW This course is designed to facilitate mastery of the core skills required of real estate professionals, be they developers, financiers, brokers, investment managers, etc. Each position requires the ability to think critically about valuation and the elements used in its construction. This class helps develop this faculty by exercising the student s analytical abilities in a number of different contexts. These include acquisition, development and financing of investment real estate, asset management, corporate real estate, lease analysis, distressed properties and the real estate workout process including bankruptcy. The course is appropriate for students interested in real estate with strong finance skills and a desire to broaden their exposure to some of the unique aspects of real estate. COURSE ORGANIZATION The course is a combination of lecture, case analysis, and insights from leaders connected to the real estate industry. Lectures are intended to prepare students to think critically and creatively about issues found in the cases. The cases have been selected to provide students with a broad array of advanced real estate topics and to force them to integrate lecture material with their fundamental skills in an applied setting. Insights from real estate professionals will play two roles: first, they will add context to the class material, as well as introduce current issues and trends for a variety of markets and product types; second, these insights will assist in the discussion and analysis of the individual cases.

2 Prof. Landreth Syllabus for FBE 570 Spring 2006 Page 2 of 8 REQUIRED COURSE MATERIALS TEXTBOOKS Two textbooks will serve as your basis for reference: Commercial Real Estate Analysis and Investments By David Geltner and Norman Miller, 1 st edition ISBN: REQUIRED READING Throughout the course required readings will be assigned. These readings will be relevant for theory-based class discussion, critical analysis of practical applications, and for stimulating creative ideas / solutions for applied real estate issues and decision-making. FINANCIAL CALCULATOR You must have a financial or programmable calculator capable of computing annuities and present values. You are also responsible for knowing how to use these functions. You should bring the calculator to all classes. ARGUS FINANCIAL SOFTWARE You should make arrangements to be able to access the Argus Financial Software. Personal versions of ARGUS Financial Software are available for sale to individual students for use during the course. It is strongly recommended that the software be purchased as soon as possible. The software will be used to analyze cases during the course and is widely used in the real estate community. Familiarity with the program will ease analysis of the cases and be a skill that may help in future job placement. MICROSOFT EXCEL SOFTWARE You should make arrangements to be able to access the Microsoft Excel spreadsheet software. This software will be used to analyze cases during the course and for enhancing basic financial modeling skills of various real estate product types. ACADEMIC CALENDAR Spring Recess M-Sa March Classes End F April 28 Study Days Sa-Tu April 29-May 2 Exams W-W May 3-10 (6 days) Commencement F May 12

3 Prof. Landreth Syllabus for FBE 570 Spring 2006 Page 3 of 8 COURSE REQUIREMENTS & GRADING Students are required to analyze and prepare every assigned reading and case for in-class discussion. The grade the student will earn in this class will be based on the aptitude displayed on individual assignments, group case analyses & presentations, quizzes & participation, final project and a final exam. Grading is on a point based system as follows: Quizzes & Participation 50 Points Case 1 50 Points Case 2 Case 3 Case 4 Case 5 Case 6 Case 7 Case 8 Final Project 150 Points Final Exam 150 Points Total Possible Points 1100 Quizzes will be announced and unannounced to test the student s aptitude of the topics covered. Class Participation is vital to the success of this course. This is an opportunity to discuss ideas. A key to being a successful Real Estate Professional is your ability to think of possible solutions and implement them before your competitor does. This class is a good opportunity to practice these skills. Group Case Analyses will allow the students to work in teams to analyze a financial topic, synthesize the individual ideas into a team approach and present the team s solution for peer review and discussion. Each group is required to turn in a written analysis and report for each case assigned. Each case will have one or two groups randomly chosen to orally present their solutions (see Case Assignments for a schedule of when to present). Requirements for the cases will be clearly communicated. Each case at a minimum must have the following components as follows: 1. A thorough Financial Analysis to determine financial feasibility of various solutions 2. A recommended Solution and a critical justification of the ideas that helped the team arrive at this Solution. 3. A Scenario Analysis enveloped around the recommended Solution These Group Cases give the students the opportunity to enhance their critical thinking and analytical reasoning skills. Real Estate is not a static object. The investment horizon for a real estate investor is usually long-term and market conditions are constantly

4 Prof. Landreth Syllabus for FBE 570 Spring 2006 Page 4 of 8 changing. Hence, a thorough investigation of different financial & market scenarios is very important to help determine the likelihood of successful attainment of the investor s goals. The required Final Project is the opportunity for students to investigate a financial topic or project in depth in a randomly assigned U.S. City. A report is required for this project. The report should include an investigation of the idea, economic & market trend information, a thorough critical analysis of the project elements and / or pertinent literature, and a proposed solution. Make sure to justify your ideas and solutions with current market data & analysis. Expectations will be clearly communicated in a separate documentation. It is recommended that you work on this project throughout the Semester. The required in-class Final Exam is an opportunity for the students to display their critical thinking & reasoning skills and decision making abilities to a set of market data for a real estate venture. Students will be required to synthesize & analyze the data given, provide all proformas & tools to support their recommendation, and include a scenario analysis by hand (paper & calculator). The objective is to provide a data-driven recommendation to an investment committee for a go / no go decision. The Course Grade for the students will be determined based on the following Scale: Grade Minimum Points Maximum Points A A B B B C C C D D D F REFERENCES, PERIODICALS AND WEB SITES Students should have a complete working knowledge of the material in Breuggeman and Fisher, Real Estate Finance and Investments, 11th Edition, Homewood Illinois: Irwin, Also, it is assumed that students have covered the standard core material in corporate finance and accounting. Students who have not taken FBE 591 or RED 542 should acquire, read and understand this textbook.

5 Prof. Landreth Syllabus for FBE 570 Spring 2006 Page 5 of 8 There are numerous periodicals that will help students keep abreast of real estate events, trends, people, players and deals. (This is by no means an exhaustive list.) Among periodicals, The National Real Estate Investor, Commercial Property News and Real Estate Alert (an expensive weekly) provide good national coverage. The Real Estate Review is an excellent applied journal. The Property Report appears in the Marketplace of the Wall Street Journal every Wednesday. Local periodicals include the Los Angeles and Orange County Business Journals. The Los Angeles Downtown News, distributed free in Hoffman Hall on Mondays, often has real estate oriented articles regarding the LA region. The LA Times Business Section has regular coverage of commercial real estate on Tuesdays. Periodical databases found on the USC library web page, such as ABI/Inform, Lexis/Nexis, and econlit, can also be useful. Industry web sites that are of interest include: - National Association of Industrial & Office Properties - Urban Land Institute - Building Industry Association of Southern California - International Council of Shopping Centers - Wide variety of current real estate business information - REIT information and data - Topical real estate articles - Building management information, links - Commercial real estate returns by segment/region - Real estate analysis software - National/International commercial reporting - Commercial real estate news, data and property listings - Wall Street Journal s real estate information site Other sites that are useful for demographic/socioeconomic/fundamentals data include: - the U.S. Census site for demographic information - the Bureau of Labor Statistics site for economic data - the Bureau of Economic Activity site for economic data - Economic and finance data series - Housing data - List of business journals for various cities STUDENT ACCOMMODATIONS & CONDUCT Any student requesting academic accommodations based on a disability is required to register with Disability Services and Programs (DSP) each semester. A letter of verification for approved accommodations can be obtained from DSP. Please be sure the letter is delivered to me as early in the semester as possible. DSP is located in STU 301 and is open 8:30 a.m. to 5:00 p.m., Monday through Friday. The phone number for DSP is (213)

6 Prof. Landreth Syllabus for FBE 570 Spring 2006 Page 6 of 8 Academic dishonesty will not be tolerated. Ethical standards are mandatory for success in this course. The University s recommended consequences for violations of academic integrity will be strictly followed. Disruptive Student Behavior will not be tolerated. Professional conduct is mandatory for success in this course. The University s recommended consequences for disruptive behavior will be strictly followed. Please be considerate of the instructor and your fellow classmates. Do not be late for class. Please set your phones and pagers to a silent setting. CLASS MEETINGS Below is a list of topics and the schedule for the semester. The material is subject to change. However, if a change occurs the students will be given ample notification prior to the original assigned dates. GM Geltner & Miller Session Dates Topics Suggested Readings Jan. 12 Course Overview GM 7 9 Real Estate Finance, Investment & Development Review Fundamentals & Performance metrics Development & Investment processes Jan. 19 Proforma Analysis Project Feasibility Request for Proposals Finance Packaging GM 29 Jan. 26 Feb. 2 Feb. 9 Valuation Highest and Best Use Residual Land Value Residual Land Value cont. Project Financing Deal Structure Land Development Infrastructure Impact Fees GM 4, BF 16 Feb. 16 Feb. 23 Master Planning Mortgage Mechanics Retail Development Percentage Rents Leasing Strategies Trends and Innovations in Master-Planned Communities Shopping Center Development Handbook

7 Prof. Landreth Syllabus for FBE 570 Spring 2006 Page 7 of 8 Mar. 2 Mar. 9 Mar. 16 Mar 23 Mar 30 Apr 6 Apr 13 Hotel Development Debt & Equity Finance Analysis Strategic Negotiation Multifamily Housing Affordable Housing Spring Recess No Class Asset Management Investment Management Investment Management cont. Office & Industrial Portfolio Theory & Strategy Risk Analysis & Management Real Estate Investment Trusts Capital Markets Hotel Development Resort Development Handbook Multifamily Development Handbook GM GM 21 GM 24 Apr. 20 Final Case Presentations Real Estate Transactions; George Lefcoe Apr. 27 May 4 Real Estate Cycles & Strategies Real Estate in a downturn Asset Workouts Bankruptcy Distressed Property State of the Real Estate Markets Final Exam Case Assignments The following is a list of case assignments and their due date. Each group is required to turn in a written solution for each case. Each case will have one or two groups randomly selected to present their solutions as a basis to facilitate the class discussion of ideas. The objectives of the case assignments are to prompt the student s critical thinking skills and combine theory and practical applications.

8 Prof. Landreth Syllabus for FBE 570 Spring 2006 Page 8 of 8 For Cases 2 5 students will be using a tract of raw land and determining how much product, what product types and timing to build, sell etc. Case 6 introduces the students to investment finance. Case 7 introduces the students to Portfolio Management. Case 8 challenges the student s ability to negotiate a solution regarding a distressed asset. Date Assigned Case Typology Case Title Group or Individual assignment Potential Grade Points Jan 19 Proforma Review 1. Proforma Basics (Individual / 50pts) Feb 2 Development Feasibility & Land Value 2. Project Feasibility & Valuation (Group / 100pts) Due Date Jan 26 Feb 9 Feb 16 Land Development 3. Stillwater (Group / 100pts) Feb 23 Feb 23 Retail Development / 4. Neighborhood Shopping Center Mar 2 Percentage Rents (Group / 100pts) Mar 2 Hotel Development 5. Wyndham / Blackstone (Group / Mar 9 100pts) Mar 23 Multifamily Investment 6. Post Properties (Group / 100pts) Mar 30 Mar 30 Portfolio Management 7. Blind Pool Investing (Group / Apr pts) Apr 13 Distressed Property 8. Asset Workout Strategy Apr 27 (Group / 100pts) Jan 19 Final Project Random City Asset Investigation (Group / 150pts) Apr 20 SUPPLEMENTAL READING This course covers many topics related to real estate finance. Many of the topics discussed can be investigated through various texts, articles and other media. If you would like a list of the suggested readings, please inform me and I ll be glad to help you locate the information you desire.