Instructor: Class Meeting Time: Class Format: Course Website: Teo Nicolais, Owner Nicolais, LLC mgmte2035@dce.harvard.edu (Tuesday Lecture Group) mgmte2035s2@dce.harvard.edu (Wednesday Lecture Group) 7:40PM 9:40PM (See your registration for the lecture day) Live Web Conference (online only, recordings available) https://canvas.harvard.edu/courses/2074 Course Description and Overview Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it. ~Warren Buffett This course is designed to provide practical skills for actively engaging in real estate investment. You will gain a working knowledge of the major components of the real estate industry, the mechanics of undertaking projects, the skills to develop financial models for investments, an understanding of how firms obtain capital for their projects, and how to manage enterprises. You will discover the various asset classes within the real estate industry and study the broad market cycles which lead to investment opportunities; develop the technical skills for creating financial models, analyzing cash flows, and measuring economic returns of real estate investments in Microsoft Excel; explore how to raise capital for real estate investments through debt and equity partnerships; learn the practical steps for putting together and operating real estate investment projects with an eye toward balancing or mitigating risk; and gain practical decision-making experience by working through real world investment situations. Course Format This live, interactive Web Conference Course takes place exclusively online using two of Harvard s newest online platforms: Canvas and Blackboard Collaborate. Far from a traditional course website, Canvas is a state of the art learning management system. On the course s Canvas site you ll submit your weekly assignments, take your exams, and collaborate with your peers for your final project. The weekly lectures will take place live using Blackboard Collaborate, a webconferencing platform designed specifically for academic settings. Teaching assistants will also hold weekly section meetings using Blackboard Collaborate to discuss the material in greater detail and offer office hours. For those of you new to the program, a "section" is like a mini-class that allows you to engage the material in a more intimate setting. Revised February 26, 2015 Page 1 of 8
Including lecture, section meetings, and assignments the time commitment for a typical week is expected to be around six hours. While attendance of lectures and section meetings is strongly recommended, attendance is not required. Recordings of all lectures and section meetings will be available on the course Canvas site. Weekly Assignments and Exams All weekly assignments and exams for the course will be completed online and submitted through the Canvas site. Weekly assignments are designed to have a high degree of instructional value: completing the assignments will help you work through the material and discover insights on your own. The time you are expected to spend on weekly assignment will vary but is typically about one hour. All assignments will be submitted online and are due at 11:59pm US Eastern on lecture day for the course in which you re enrolled. We cannot accept late problem sets for any reason. To compensate for this policy, the lowest of their problem set scores will be dropped from each student s semester grade calculation. There will be two exams. The first exam will cover the first five class sessions. The second exam will cover the second five class sessions. Both exams will be 60 minutes in duration and carry equal weight. They will be open book and are administered online. Collaboration on exams is not permitted. Final Projects One of the primary objectives of this course is for you to gain practical decision-making experience by working through investment situations. Toward that end, you will be forming a team of three to five students to analyze, structure, and present a real estate investment project with the goal of attracting lenders and equity investors. Your team will select a project from one of the major development types (residential for-sale development, multifamily income, office, retail, etc) of your choice. Presentations will include financial a project summary, market analysis, Pro Forma, and sensitivity analysis and will last fifteen minutes including time for question and answers from the audience. All students will play the role of lenders or investors as well: you will be assigned a quantity of capital to invest in one or more of the projects proposed (excluding your own). You will be investing your capital based on your assessment of the returns as well as your judgment of the sensitivity of the project to risk factors and the soundness of the plan. Graduate level students will be required to write a short response paper explaining their investment decisions. For the first round (April 28 th ) the course will be divided into several groups of teams (each team presenting to their group). The teams which attract the most capital from lenders and equity partners will present to the entire class during the second round on May 5 th. The goal is to expose you to as many projects (and perspectives) as possible to give you a head start on future real estate and non-real estate investment decisions. Members of the winning team will earn a 5% bonus on their semester scores. Members of the second place team will earn a 2.5% bonus on their semester scores. Revised February 26, 2015 Page 2 of 8
Grading Your semester score will be automatically calculated using the weighting system below and you will be awarded the higher of the two scores: Assignments: 25% Assignments: 25% First Exam: 25% Second Exam: 25% Second Exam: 50% Final Project: 25% Final Project: 25% When calculating your semester grade, we will drop your two lowest Weekly Assignment scores. Also, while there will be a final project and second exam for this course you will find there is ample time between the two to prepare for the final (see the course schedule below). Letter grades will then be assigned according to the following fixed scale: Percentage of Semester Letter Grade Points A 93% A- 90% B+ 87% B 83% B- 80% C+ 77% C 73% C- 70% D 65% E/F 0% The percentages above represent the lower bound of the letter grade range. For example, a student who earned an 86.9% would receive a B for the course. A student receiving exactly 87% of semester points would receive a B+ for the course. Readings Floyd, Charles F. and Allen, Marcus T., Real Estate Principles, 10 th Edition (Dearborn Real Estate Education, 2011). ISBN-13: 978-1-4277-2488-5, ISBN-10: 1-4277-2488-1 ( Floyd and Allen ). Peiser, Richard B. and Hamilton, David. Professional Real Estate Development: The ULI Guide to the Business, Third Edition (Urban Land Institute, 2012). ISBN-13: 978-0-87420-163-5 Note: While the above editions are recommended, prior versions of the both textbook are acceptable. Revised February 26, 2015 Page 3 of 8
Other Logistics Prerequisites: Technology: High school algebra. No prior real estate or finance background is required for this course. Sessions 8, 9, and 10 focus on using Microsoft Excel 2013 to create financial analysis. Having Microsoft Excel (versions 2013, 2010, or 2007) is STRONGLY recommended. Google Spreadsheets are an acceptable alternative. Previous knowledge of Excel is helpful but not required. Scientific calculator (one capable of handling exponents) would be helpful. Financial calculators are not required. Communication Outside of Class: Students are welcome and encouraged to ask questions of the teaching staff via e-mail outside of class. Our experience has been that our live discussions with the benefit of video, audio, and whiteboards (all of which are recorded and posted the Canvas site for later review) are incomparably more effective and efficient in answering student questions than e-mail. Course Schedule We encourage you to send us questions via e-mail and we will be glad to answer those questions *during the next section meeting.* Word of advice: keep a careful eye on the course calendar in the syllabus. Do not wait until the night before the weekly assignments are due start on them if you want assistance from the teaching staff be sure to e-mail us **before the scheduled meetings** so we can answer your questions during the recorded sessions. Module I: Understanding Land Use and Urban Growth Week of Jan. 26, 2015 - Session 1: What is Real Estate? Course overview Special characteristics of real estate Who becomes successful real estate investors? How do they start? Readings: Floyd and Allen, p. 1 14, Peisner and Hamilton, p. 3-13 Week of Feb. 2, 2015 - Session 2: What Can You Do With Land? Forms of ownership and common restrictions Zoning and Product Types o Residential o Retail o Office o Industrial o Specialty: Hotels, Motels, Resources Weekly Assignment #1 Due: Introduce Yourself Readings: Floyd and Allen, p. 222-229, 242-258 Revised February 26, 2015 Page 4 of 8
Course Schedule (Continued) Week of Feb. 9, 2015 - Session 3: How Do Cities Develop? Market Driven Land Use: The Bid-Rent Curve Urban Growth Patterns o Concentric Circle Model o Axial Growth Model o Sector Growth Model o Multiple-Nuclei Growth Model Understanding a Neighborhood s Life Cycle Understanding a Property s Life Cycle Identifying Opportunities within Your Market Readings: Floyd and Allen, p. 286-303 Module II: Real Estate as an Asset Class Week of Feb. 16, 2015 - Session 4: What is the Real Estate System? The Space Market o Demand Basics o Supply Basics o Market Equilibrium o Understanding Change The Asset Market o Debt Assets o Equity Assets Pricing Assets Synthesis: The Real Estate System Weekly Assignment #2 Due Readings: Floyd and Allen, p. 261-277 Week of Feb. 23, 2015 - Session 5: What is the Real Estate Cycle? Origins The Four Phases: Recovery, Expansion, Hyper Supply, and Recession Strategies for Success During Each Stage of the Cycle Where are we now? Readings: Peiser and Hamilton, p. 15-17 Weekly Assignment #3 Due Mar. 1, 2015: Weekly Assignment #4 Due (Assignment #4 is due on a Sunday night so you have time to review the answers before the first exam.) Revised February 26, 2015 Page 5 of 8
Course Schedule (Continued) Week of Mar. 2, 2015: ***First Exam*** Module III: Fundamentals of Investment Analysis Week of Mar. 09, 2015 - Session 6: Essential Investment Analysis Tools Future Value of a Present Sum Present Value of a Future Sum Present Value of a Stream of Cash Flows Present Value of an Annuity Net Present Value Internal Rate of Return Weekly Assignment #5 Due Week of Mar. 16, 2015: Spring Break Week of Mar. 23, 2015 Session 7: Hands-on Investment Analysis Part I: Developing a Pro Forma in Excel Baseline project pro forma and financial analysis Weekly Assignment #6 Due Readings: Peiser and Hamilton, p. 168-173 Module IV: Advanced Investment Analysis Week of Mar. 30, 2015 - Session 8: Hands-on Investment Analysis Part II: Understanding Debt Types of debt Incorporating debt into your pro forma and financial analysis Tips for negotiating loans Weekly Assignment #7 Due Readings: Peiser and Hamilton, p. 173-188 Apr. 7, 2015 - Session 9: Hands-on Investment Analysis Part III: Partnerships and Joint Ventures Partnership and Joint Venture structures Risks, rewards, and other considerations Incorporating partnerships into your pro forma and financial analysis Preferred returns Weekly Assignment #8 Due Readings: Peiser and Hamilton, p. 188-190, 210-216 Revised February 26, 2015 Page 6 of 8
Course Schedule (Continued) Module V: Creating and Managing a Real Estate Enterprise Week of Apr. 13, 2015 - Session 10: Action Plans: How do you get started? Understanding the Value Chain and your place in it (the Six Stages of Development) o Feasibility o Acquisition o Design o Financing o Construction o Marketing and Leasing o Operations and Management Selecting a corporate structure Setting your goals Building your team Advice and lessons learned from the industry Readings: Peiser and Hamilton, p. 17-29 Week of Apr. 20, 2015 - Session 11: How does a developer go about raising capital? Using a sensitivity analysis to understand lenders and investors concerns Re-structuring your project to satisfy stakeholders The art of asking for money Weekly Assignment #9 Due Peiser and Hamilton: You Must Control One of These to Get Started Module VI: Putting it Into Practice Week of Apr. 27, 2015 Session 12: Final project presentation (Round I) Teams will present to an assigned group of teams. At the end of the session each student will allocate their capital to one or more of the proposed projects via the Canvas Site. Graduate level students will be required to write a short response paper explaining their investment decisions. Week of May 4, 2015 Session 13: Final project presentation (Round II) The teams which raised the most capital in Round I will present to the entire class. At the end of the session each student will allocating their capital to one or more of the proposed projects via the Canvas Site. Week of May 12, 2015 ***Second Exam*** Revised February 26, 2015 Page 7 of 8
About the Instructor Teo Nicolais is a real estate entrepreneur who loves to teach. Nicolais lived and breathed real estate as the Director of Finance and Acquisitions for a $500 million real estate investment company in Illinois which specializes in apartment communities and single-family home developments. In addition to developing cash flow forecasts and performing financial due diligence, Nicolais personally identified and negotiated the purchase of new investments and arranged project financing using equity, taxable and tax-exempt bonds, institutional debt, and conventional bank loans. Nicolais currently lives in Denver where he runs his own real estate investment company, Nicolais, LLC. With the help of his employees, Nicolais invests in multifamily rental properties in the Denver metro area and is active in the city s fix-and-flip market. Nicolais is the Chair of the Apartment Association of Metro Denver s Independent Rental Owner s Council, a member of the Urban Land Institute, and served as a Director of the US Fund for UNICEF. Throughout his professional life, Nicolais has always made time to teach. Nicolais recently taught his 41st course at the Harvard Extension School alongside Professor Bruce Watson s with a cumulative enrollment of over 7,000 students since Nicolais starting teaching. His students recently honored him with an overall rating of 4.83 out of 5.00 in their course evaluations and awarded him the Harvard Extension Student Association s Student Choice Award for 2012 and 2013. He was also the recipient of the Harvard Extension School s First Annual Dean Michael Shinagel Award in 2014. He earned his bachelor s degree from Harvard College with a concentration in economics. As part of his undergraduate academic work, he studied advanced real estate finance at the Harvard Graduate School of Design and leadership at the Harvard Business School. Academic Integrity All work submitted for credit at Harvard is expected to be the student s own. Please take the time to familiarize yourself with the Harvard s policies on academic integrity, which can be found at http://www.extension.harvard.edu/exams-grades-policies/student-responsibilities. Other resources include, The Harvard Guide to Using Sources (http://usingsources.fas.harvard.edu/icb/icb.do). Please visit and use this site to avoid any unintentional errors. It is important to understand the standards to which you will be held; ignorance of the standards will not be considered an excuse for violating them. Professional Conduct Professional behavior is expected throughout the class. This means respectful communication. During discussions, negotiations, and debriefs, civil discourse should be maintained at all times and comments should be aimed at moving the discussion forward. This does not mean that students must always agree with others since reasoned, respectful dissention may be part of the discovery process and lead to previously unconsidered options. Opportunities to provide feedback to classmates will be provided in class in our debriefing sessions. Revised February 26, 2015 Page 8 of 8