Re 386. 2 Real Estate Investment and Development Decisions

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Department of Finance

McCombs School of Business Administration

University of Texas at Austin
RE 386.2

Real Estate Investment and Development Decisions

Spring 2008

Wag 420
Unique # 03385 (Tuesdays, 5:00 pm – 8:00 pm)
Instructor: Lenore M. Sullivan

Office: CBA 6.432 N

Office Hours: By appointment
Voice Mail: (512) 232-5444


Home Page:
Teaching Assistant: Alan Crane


Office Hours: Friday, 10 am – noon, CBA 5.334U
Course Description
The course examines the analysis of real estate investments and property developments from the equity owner’s/developer’s point of view. Economic and financial concepts are applied to real estate analysis with the objective of building a solid foundation in the fundamentals of real estate valuation and deal structuring. The course will combine lectures with student discussions, case analysis, and presentations by real estate professionals in its review of the various disciplines involved in real estate investment analysis.
The first half of the course focuses on the evaluation of existing, income producing properties to establish a basis for analyzing real estate markets and individual property investments. The course starts with a discussion of the principles of urban economics; the determinants of real estate supply and demand; the evaluation of risk and return in equity investment analysis; the legal and financial underwriting of mortgage debt; and the impact of financial structuring decisions on equity investors.
The second half of the course begins with an overview of the development process, and the risks and financing issues specific to development transactions. We will then discuss the five major categories of commercial property – industrial, multifamily, retail, office and hospitality. The tools for evaluating various types of commercial property, as well as the debt and equity financing of those properties, will be highlighted through the use of case analysis and class discussion of new development projects and redevelopment/repositioning opportunities. All of the cases will be based on actual transactions; where possible, the principles involved in each transaction will join us in class as we review and discuss the cases in detail.

RE 386.2

Real Estate Investment and Development Decisions – Spring 2008

Course Materials

Required Texts: Basics of Real Estate Finance and Investment, Geltner and Miller

Professional Real Estate Development, Peiser etal.

Emerging Trends in Real Estate 2008, ULI/PriceWaterhouseCoopers

Additional Readings and Cases

The Geltner/Miller text is a custom compilation of material from two separate Geltner textbooks; readings are assigned by page number. Additional readings and cases will be distributed periodically during the semester, either in class or via Blackboard.

The use of notebook computers is not permitted in class. Each day’s class presentation will be available on blackboard and will be printed and distributed at the start of class for note taking.
Course Requirements and Grading
Grades will be based on the student’s performance on the mid-term examination, case analysis, class participation, and the final exam as follows:
Mid-Term Examination 30%

Case Analysis, Assignments and Class Participation 40%

Final Examination 30%
The midterm examination will be given on Thursday February 28 outside of regular class hours. The time and location will be announced midway through the first half of the semester. It will be a comprehensive exam and will include all of the material covered through the previous class sessions. A comprehensive final examination will be given per the McCombs final exam calendar.
Five cases will be analyzed over the course of the semester. Cases will be completed as team assignments, with no more than five students working together per team. All teams will be responsible for three (3) written case papers. The first case, the Metropolitan Capital financing case, is due on Thursday, February 26. All teams must complete a written analysis of this case. Each team will be assigned two of the remaining four cases to write up and submit on the case due date; however, all students are expected to be prepared for class discussion of the cases regardless of whether their team is preparing a written analysis or not. Team case assignments will be distributed when the teams are finalized. Please be prepared to submit your team list to Professor Sullivan by Thursday, January 29.
Written case papers should consist of five to six typed pages of text plus any appropriate financial analysis. They are due at the start of class on the day the case will be discussed; papers with formatted-to-print excel spread sheets attached may also be emailed provided they arrive one hour before the start of class. No late papers will be accepted. Case papers should be prepared in the format of an investment memorandum outlining your analysis and recommendations. Neatness, organization, clarity, grammar, punctuation, spelling, and conciseness matter, and will be taken into consideration in grading. Do not submit anything that you would not feel comfortable submitting to the CEO of a prospective future employer!
RE 386.2

Real Estate Investment and Development Decisions - Spring 2008

Attendance will not be taken, but students will be held responsible for everything covered or assigned in class. Please make every effort to be present on days when guest speakers will be joining us. Our guest speakers are making a special effort to share their experience with us and a good reception is warranted. On other days, in addition to reviewing assigned material, class time may be devoted to industry situations and conditions that place the material in context and enhance students’ understanding and appreciation of the issues. Your general conduct in class, including attendance, promptness and participation, will be a factor in your final grade.
Policy on Scholastic Dishonesty
Students who violate University rules on scholastic dishonesty are subject to disciplinary penalties, including the possibility of failure in the course and/or dismissal from the University. Since dishonesty harms the individual, all students, and the integrity of the University, policies on scholastic dishonesty will be strictly enforced. You should refer to the Student Judicial Services website at or the General Information Catalog to access the official University policies and procedures on scholastic dishonesty as well as further elaboration on what constitutes scholastic dishonesty.

Students With Disabilities

The University of Texas at Austin provides upon request appropriate academic accommodations for qualified students with disabilities. For more information, contact the Office of the Dean of Students at 471-6259.

RE 386.2

Real Estate Investment and Development Decisions – Spring 2008

Part I – Real Estate Investment Analysis
Tues., Jan. 15 Introduction, Course Overview, Course Administration
Principals of Urban Economic Analysis; Market Research and Determinants of Supply and Demand; Understanding Real Property Leases

Recommended Reading: Geltner and Miller, pgs 1-19, 20-112

Tues., Jan. 22 Real Estate Valuation and Investment Analysis
Discounted Cash Flow Assignment – Due Tuesday, February 5
Recommended Reading: Geltner and Miller, pages 132 – 228
Tues., Jan 29 Analyzing Real Estate Markets
Guest Speaker: David Evemy, SVP of Strategic Planning

Sarofim Realty Advisors, Dallas

Recommended Reading: Emerging Trends 2008

Tues., Feb. 5 Discussion of DCF Assignment
Debt Financing and the Capital Structure Decision; the Legal and
Financial Basics

Recommended Reading: Geltner and Miller, pages 113 – 130 and 229 - 252

Tues., Feb. 12 Mortgage Underwriting and Financing of Real Estate Investments
Mortgage Debt Assignment – Due Tuesday, February 19
Recommended Reading: Geltner and Miller, pages 253 – 360
Tues., Feb. 19 Discussion of Mortgage Debt Assignment
Sources of Real Estate Equity Capital; Determination of Equity Returns
Recommended Reading: “Why Real Estate?” An Expanding

Role for Institutional Investors”, S. Hudson-Wilson, F. Fabozzi, and J. Gordon, Journal of Portfolio Management (article on Professor Sullivan’s web site)

RE 386.2

Real Estate Investment and Development Decisions – Spring 2008

Tues., Feb. 26 Metropolitan Capital Financing Case
Guest Speakers: Scott Lynn, Director

Kevan McCormack, Associate

Metropolitan Capital Advisors, Dallas
Thurs., Feb. 28 Midterm Exam – location TBD
March 3 – 7 Global Plus Trip
Enrichment Activities During Plus Week:
Tues., March 4 Video Presentation: “Land, and How it Got That Way”
Film Courtesy of Walter Brock Productions
March 10-14 Spring Break

Part II – Real Estate Property Types - Development and Financing Decisions

Tues., March 18 Introduction to Development; Valuing and Financing Land
Single and Multi Family Residential Properties
Recommended Reading: Peiser, Chapters 1- 4
Tues., March 25 Land Development Case - Newland Communities
Tues., April 1 Industrial and Office Properties
Recommended Reading: Peiser, Chapters 5 & 6
Tues., April 8 Industrial Properties CaseMcClane Distribution
Guest Speaker: Bruce Petersen, VP

USAA Real Estate Company
Tues., April 15 Retail and Hotel Properties
Recommended Reading: Peiser, Chapter 7

Tues., April 22 Retail Property CaseThe Plaza
Guest Speaker: Dan Feeney, Managing Director

Bob McClain, Managing Director

Crow Holdings

RE 386.2

Real Estate Investment and Development Decisions – Spring 2008

Tues., April 29 Hospitality Case - Project Snowstorm
Guest Speakers: Will Mundinger, Senior Vice President

Robin Bot-Miller, Vice President

Final Exam Time and Date TBD, per McCombs final examination schedule

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