11.431J/15.426J: Real Estate Finance & Investments I: Micro-Level Fundamentals
Tuesday, Thursday, 4:00 - 5:30pm
Tuesdays, 5:30 - 7:00pm
- Description and Objectives
- Examination Dates
- Course Evaluation (MIT Certificate Required)
This course is an introduction to the most fundamental concepts, principles, analytical methods and tools useful for making investment and finance decisions regarding commercial real estate assets. As the first of a two-course sequence, this course will focus on the basic building blocks and the “micro” level, which pertains to individual properties and deals (as distinguished from the “macro” level that pertains to portfolio, firm level, and investment management considerations – the macro level will be covered in 11.432 next spring). This course will consider investment in both “stabilized” (fully operational) income properties, and development projects. Our perspective will be that of so-called "institutional" real estate decision-making (e.g., pension funds, REITs, private equity funds, financial firms), regarding large-scale commercial property. At this level it is important to integrate the perspectives of “Wall Street” (the mainstream securities investments and corporate finance establishment) and “Main Street” (local, traditional real estate business community). This requires a treatment of real estate investment rigorously integrated with, and built upon, the modern corporate finance and investments perspective as taught, for example, in the Brealey-Myers text in the Sloan introductory finance theory curriculum (15.401). However, a key objective of this course is to recognize the unique features of real estate that distinguish it from so-called “mainstream” securities investments and corporate finance.
Sloan and other students taking this course as an elective should understand that this is a required course in MIT’s MSRED program core and, as such, is taught as a “core” subject. That is, a large body of material is covered in a short amount of time, aimed at students who do not necessarily have much finance background. This precludes primary reliance on the case method as is done for example in the Harvard Business School and many Sloan courses. However, we will focus on several HBS cases in much greater depth than is done in the HBS. This is a rigorous, analytical course that involves intensive quantitative analysis (particularly using Excel spreadsheets). This course involves considerable workload, and students whose time is tight should consider auditing.
- Text: (required) D.Geltner & N.Miller, "Commercial Real Estate Analysis & Investments", 2nd Edition, South-Western College Publishing Co., Cincinnati, 2007 (ISBN# 9780324305487) (www.swcollege.com).
- Argus: Students will be required to buy a student version of the "Argus" real estate analysis software from The Realm (www.therealm.com).
- Calculator: A financial calculator
is required, of a type that can do discounted
cash flow and internal rate of return calculations
(DCF, IRR). The Hewlett-Packard HP-10B
will be used for in-class examples.
In addition to twice-weekly lectures, there will generally be weekly recitation classes. These will be used to review the material presented in lecture and the text, and in some cases as extensions to the class to allow more complete coverage of case and project assignments. The teaching assistants will serve as the graders (with appeals to the primary instructor). Recitation attendance is advisable for most students, but is not mandatory.
No Open Laptops in Class, Turn Cell Phones Off (or “Airplane Mode”), Please (unless specified).
However, laptops will be used extensively in the recitations.
- There will be 4 brief quizzes, one at the end of each of the four modules of the course, totaling 60% of the course grade.
- There will generally be short written or computational assignments due at the beginning of class, focusing on the case that is being covered and/or related problems. These written assignments (which may be Excel workbooks) will be graded on a check/check-minus/incomplete basis (primarily based on apparent effort) and in total will count for 20% of the course grade. Students may work in groups of up to 4 students each on the daily assignments, but please mix up the group compositions from time to time so you don’t just work with the same couple people all the time.
- The final 20% of the course grade will reflect in-class participation and contributions in the course Stellar Discussion Forum. At a minimum, each student is expected to post one question to the forum and to respond to one question during each of the four modules in the course. (The question and the response do not need to be great – they will not be graded on content – but they do need to be genuine and relevant to the course, though they can be “out of the box” or creative.)