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
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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 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