Real Estate

Course Review

Class 1: Introduction

• The oldest investment– The oldest contracts.

• Basic principles:– Rights to occupy, transfer, enjoy.– No land rights, no economy

• Role as security:– Assignats and land banks to MBS

Class 1: Real Estate as Investment

• Development process• Valuation fundaments

– Comparables– Present value– Replacement

• The Century Tower– Pro-forma example– Lease structure– IRR/PV/Cap Rate

Class 2: Angus Cartwright

• Raises more questions than answers

• Copy pro-forma, but why?– Details embedded in the market value or not?– How to assess risk?

• Is this a real estate case?– Does RE make sense for these investors?

Class 2: Dynamics

• Valuation and changing economic factors.

• Rents and vacancies in a strategic setting– High vacancies good or bad thing?

• Cap rates move with interest rates– Real estate discount rates related to

alternative uses of capital.

• Simulation may be the answer.

Class 3: Doug Shorenstein

• What a successful strategy looks like– Active, opportunistic– Few close partners with ready cash.– Long-term experience with market cycles.– Philosophy about liquid markets

• Lexington Avenue Case– How to think through a pro-forma.

• First real look at serious market information.

Class 3: Debt

• Real Estate as security– Commercial mortgage backed securities– How debt structure affects motivation

• Concept of default

Class 4: New England Center

• A valuation case that hinges on ownership transfer

• A study in default

• How people and litigation matter

• A peek at real estate titans.

Class 4: Real Options and Agency

• Develop as an option– Empirical evidence on development options

being valued.– Volatility increase development optionality

value.

• Leasing as option– Low rents/high rents.

Class 4: Agency

• Agency and information asymmetry– Agent motivation– Fee contract as tool for resolving conflict.

• Examples– Local developer national investor– Owner occupied housing.

Class 5: Costa Mesa

• Details of contracting between principle and agent.– Value brought by local developer.– Financial strength of national investor.

• Equity buyout as a resolution.

• Some information about the development process.

Class 5: Retail Location Analysis

• Fundamental character of real estate.

• Agglomeration theory: why cities?

• William Reilly– Distance, market size and store size matter.– Functional form to be estimated.

Class 6: Dubailand

• Modern application of location analysis

• How geography interacts with scale

• Feasibility of a country

• Megaproject

Class 6: International Diversification

• Real Estate as institutional asset

• Global vs. local factors– Mystery of co-movement

• GDP a major driver of correlations

Class 7: Andrea Pizzicone

Class 8: Ellen Shuman, CIO, Carnegie Foundation

• Mission-up view of an investment organization

• Role of Real Estate in the Portfolio– Lumpiness– Opportunistic vs. passive.

Class 8: Evaluation Corporation

• NCREIF vs. NaREIT– Mystery of low correlation– Valuation matters

• Benchmarking performance with indices

• Discussion of institutional evolution of real estate markets over past 20 years.

Class 9: Lucky U.

• A complete portfolio case for a university considering real estate.

• Challenge of addressing inputs to the optimization process– Volatility?

• Real Estate as inflation hedge.

Class 9: Behavioral Approach

• Survey evidence of how investors look at Real estate.– Herding into it– Uncertainty matters– Institutional differences

• Reasons for investing– Diversification– Inflation hedge

• Reasons for not investing– Liquidity– Investment risk– Poor data

Class 10: Taubman Takeover

• UPREIT structure– Conflicts of interest(?)– Role of major shareholder.– Examining share prices for market reactions

• Corporate Governance– Internal mechanisms– External discipline– Risk premium for bad governance?

• Taubman takeover as external discipline

Class 11: Tom Zacharias

• Illustrious SOM Alum in Real Estate

• Major real estate owner and manager– WP Carey as financial innovator– Sale leaseback structure

• A different perspective on the future of Real Estate.

Class 11: Mortgage Markets

• Mortgage– Refinancing option

• Institutional framework– Role of agencies– Systemic risk of agencies

Class 12: Red Brick Partners

• Is housing a viable equity investment?– Returns high enough?– Regional diversification.

• Red Brick structure and personnel.– Research, management, transactions.

• The new frontier in real estate?

Class 12: Housing markets continued

• Refinancing and the sensitivity to interest rates

• Fannie and Freddie as financial institutions

• Role of OFHEO

• OFHEO and equity indices– Repeat-sale– Hedonic estimation

Class 13: Eric Hangen

• Creator of Home Equity Insurance

• Syracuse Experience