College of Business Administration University of Illinois at Chicago Stuart Handler Department of Real Estate RES 460: Commercial Real Estate Instructor: Luis A. Lopez, Ph.D. E-mail: lal@uic.edu Office Location: 2205 University Hall Office Hours: T/TR 11:00 am – 12:00 pm Semester: Spring 2024 Class Location: Douglas Hall, Room 330 Class Hours: T/TR 9:30 am – 10:45 pm Office Number: (312) 355-8215 Course Content Through this course, students are introduced to the analysis of commercial real estate. Students learn about the special characteristics of real estate markets, the identification and valuation of investment opportunities, mortgage mechanics and calculations, and the secondary mortgage market. By the end of the course, students will gain an understanding of the key concepts and tools needed to evaluate commercial real estate investments. Expectations Throughout the course, students will be exposed to academic literature that requires collegelevel reading and comprehension skills. The instructor expects students to read the assigned material before class and participate actively in class discussions. Lectures will provide supplemental materials that do not completely overlap with required readings, encouraging students to engage in independent learning from materials parallel to the class lectures. Course Objectives After taking this course, students are expected to be able to 1. Understand basic features of commercial real estate markets; 2. Calculate before- and after-tax cash flows from income properties using a pro forma; 3. Make investment decisions for income producing properties, conduct sensitivity analysis; 4. Conduct mortgage-related calculations and make mortgage-financing decisions; 5. Know cash flow mechanics and risk sharing attributes of some mortgage backed securities; 6. Make real estate related decisions for non-real estate firms; Course Grading 1. Grading scheme: A: 90~100, B: 80~89, C: 70~79, D: 60~69, F: 0~59 2. 30% of the course grade is for three exam, each worth 10% of the course grade. 3. 60% of the course grade is based on case studies. Students are encouraged to work in groups on the case studies. Students who do not contribute to the group’s efforts will not receive credit. Detailed instructions will be provided during the course. 4. 10% of the course grade is based on attendance. 5. If a mistake in grading is noticed by a student and brought to the instructor’s attention within one week of the grades being released, the instructor will correct it. After this period, no grades will be amended. Exam Instructions Exams will be administered online or in person at the discretion of the instructor. Students must complete the exam within the scheduled block of time. In the event of an unforeseen emergency that prevents a student from taking the exam, a doctor’s note should be provided, and the student will be allowed to make up the exam or have the weight of the missed exam evenly distributed. Graduate students may receive a more challenging version of the exams. Tentative Class Schedule (this schedule is subject to change) Week 1 Real estate space and asset markets (chapter 1 and Fisher, 1992) Week 2 The four-quadrant model (chapter 2 and DiPasquale and Wheaton, 1992) Week 3 Present value mathematics for real estate (chapters 7 and 8) Week 4 Investment decisions: NPV, DCF and IRR (chapters 9 and 10) Week 5 Exam 1 Week 6 Guest Lecturers Week 7 Tulaberry Plaza case study Week 8 Mortgages mechanics and basics (chapters 16 and 17) Week 9 Investment decisions: Cash flow pro forma (chapter 11) Week 10 Investment decisions: The effect of leverage and taxation (chapters 13 and 14) Week 11 Exam 2 Week 12 SouthPark IV case study Week 13 Anderson Street case study Week 14 Golden Opportunity case study Week 15 Working at Workouts case study Rosetree Mortgage Opportunity Fund case study Week 16 Exam 3 (date subject to registrar’s office) Reading and Class Materials Textbook Geltner, David, Norman G. Miller, Jim Clayton, and Piet Eichholtz. “Commercial Real Estate: Analysis & Investments.” Vol. 3 (2014). *While this class uses the 3rd edition, students may use prior editions. Articles 1. DiPasquale, Denise, and William C. Wheaton. "The markets for real estate assets and space: A conceptual framework." Real Estate Economics 20.2 (1992): 181-198. 2. Akerlof, George. "The market for ‘lemons’: Quality uncertainty and the market mechanism." The Quarterly Journal of Economics. 84.3 (1970): 488-500. 3. Smith, Clifford W., and Lee Wakeman. "Determinants of corporate leasing policy." The Journal of Finance 40.3 (1985): 895-908. 4. Articles may be added or removed throughout the course of the semester. Case Study Students may use the following unique link to obtain (with a class discount) a course pack of required cases studies: https://hbsp.harvard.edu/import/1132532. Financial Calculator (Choose One) • Texas Instruments BA II Plus (Recommended) • HP 12c Platinum Financial • Casio FC-200V Financial Calculator • Other calculators are subject to approval Note that there are also phone apps of financial calculators. Technology Requirements • Computer/Technology Requirements: Online students will need regular access to a personal computer that runs on a broadband Internet connection. • Blackboard Learning Management System: For all technical questions about Blackboard, email ACCC-Learning Technology Solutions at LTS@uic.edu • Web Conferences/Synchronous sessions: Live classes will be conducted online on Zoom. Recorded lectures will be made available on Blackboard. ADDITIONAL UNIVERSITY OF ILLINOIS REGULATIONS: Academic Honesty and Integrity According to UIC’s Academic Integrity standards and the Student Disciplinary Policy: “As an academic community dedicated to the creation, dissemination, and application of knowledge, the University of Illinois at Chicago is committed to fostering an intellectual and ethical environment based on the principles of academic integrity. Academic integrity is essential to the success of the University’s educational and research missions, and violations of the Guidelines for Academic Integrity constitute serious offenses within the entire academic community. Students are expected to comply with the UIC Guidelines for Academic Integrity found at go.uic.edu/AcademicGuidelines.” • Academic Misconduct/Professionalism: “It is acknowledged that certain behaviors may be categorized as both disciplinary (e.g., behavior that falls within the definitions of the Standards of Conduct contained herein) and academic in nature. This policy recognizes faculty members—as well as other members of a college/department—may exercise discretion in making academic decisions and evaluations (e.g., issuing a failing grade for an assignment or class) based upon a student’s academic performance, even if that performance includes academic misconduct described in this policy, without making a referral for disciplinary action under this policy. In addition, to the extent that a college or other academic unit adopts an alternative policy or process for assessing academic performance, including behavior which may be described in this policy, but which also relates to a college’s academic standards (e.g., academic misconduct or violation of professional standards), it is at the discretion of the faculty member, academic unit, or college to determine whether to submit the matter to its own process or to this one for resolution.” • Procedure of an incident: For an overview of the process see https://dos.uic.edu/wpcontent/uploads/sites/262/2018/12/30754_DOS_Academic-Integrity-ProcessInfographic-8.5x11.pdf Access and Equity Statements Grievance Procedures: “UIC is committed to the most fundamental principles of academic freedom, equality of opportunity, and human dignity involving students and employees. Freedom from discrimination is a foundation for all decision making at UIC. Students are encouraged to study the University’s “Nondiscrimination Statement”. Students are also urged to read the document “Public Formal Grievance Procedures”. 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This nondiscrimination policy applies to admissions, employment, access to and treatment in the University programs and activities.” Statement of Reaffirmation/Title IX (September 26, 2017): “[UIC has a] commitment to providing a safe and welcoming campus environment that is free from all forms of sex discrimination, sexual and gender-based harassment, and sexual violence, including sexual assault, sexual exploitation, dating violence, domestic violence, and stalking, which are referred to in the Prohibition of Sex Discrimination, Sexual Harassment and Sexual Misconduct Policy.” Statement of Disability Resources: “UIC is committed to full inclusion and participation of people with disabilities in all aspects of university life. Students who face or anticipate disability-related barriers while at UIC should connect with the Disability Resource Center (DRC) at drc.uic.edu, drc@uic.edu, or at (312) 4132183 (v) or 773-649-4535 (VP/Realay) and consult the following: http://drc.uic.edu/guide-to-accommodations to create a plan for reasonable accommodations. In order to receive accommodations, students must disclose disability to the DRC, complete an interactive registration process with the DRC, and provide their course instructor with a Letter of Accommodation (LOA). Course instructors in receipt of a LOA will work with the student and the DRC to implement approved accommodations.” UIC Resources “If you find yourself having difficulty with the course material or any other difficulties in your student life, don’t hesitate to ask for help! Come to me, or if it is about an issue beyond this class, please contact your college advisors, or get help from any number of other support services on campus. 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For more information, visit the Writing Center website at https://writingcenter.uic.edu/.” “The Math and Science Learning Center, located in the Science and Engineering South Building (SES) at 845 W. Taylor St. 3rd Floor, Room 247, is a meeting place for students in Math, Biological Sciences, Chemistry, Earth and Environmental Sciences, and Physics. At the MSLC, students can meet with graduate teaching assistants for tutoring in 100-level courses, arrange informal group study sessions with other students, or meet up with friends to attend one of the workshops, seminars, or other activities sponsored by the SLC during the semester. Visit the website at https://mslc.uic.edu/, call 312-355-4900 or email at mslc@uic.edu.” “The UIC Library: The library is located both on east and west campus, provides access to resources, study rooms, and research support both online via chat and in person. 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In addition to offering counseling services, the Counseling Center also operates the InTouch Crisis Hotline from 6:00 p.m.-10:30 p.m. They offer support and referrals to callers, as well as telephone crisis interventions; please call (312) 996-5535.” “Campus Advocacy Network: Under the Title IX law you have the right to an education that is free from any form of gender-based violence and discrimination. Crimes of sexual assault, domestic violence, sexual harassment, and stalking are against the law and can be prevented. For more information or for confidential victim-services and advocacy contact UIC’s Campus Advocacy Network at 312-413-1025 or visit http://can.uic.edu/. To make a report to UIC’s Title IX office, email TitleIX@uic.edu or (312) 996-5657.” Campus Security “As a UIC student, you’ve chosen to live in one of the nation’s largest cities. But, as at any university, crime is a reality. At UIC, we are strongly committed to our public safety programs, and we encourage students to be proactive in learning what programs and services are available in case of an emergency. You are DISCOURAGED from staying in university buildings alone, including lab rooms, after hours and are ENCOURAGED to use the POLICE/STUDENT patrol escort if you are uncomfortable traveling anywhere on campus. You may request an escort to accompany you to your campus destination on foot by calling 312-996-2830, and between 11:00 pm and 7:00 am you can dial the Red Car service (312-996-6800) if you are alone and need to leave the building. Through Red Car, the university has established a safe evening transportation service for university employees, students, visitors, and other authorized individuals. The car travels between university facilities within the following general boundaries: Clinton Street on the east; Western Avenue on the west; Jackson Boulevard on the north; and, 16th on the south. This service is available only to individuals possessing a valid UIC i-card. The i-card is required to ensure the safety of the driver and other passengers. Consult the following for more information: http://www.uic.edu/uic/studentlife/campus/safety.shtml” “Also, you can subscribe your cell phone to receive text message alerts. An immediate SMS text alert will be sent in case of a serious crime in progress, a weather emergency, or other urgent situation. (https://accountportal.uic.edu/auth/manage?dispatch=set_sms_panel).” “Finally, by dialing 5-5555 from a campus phone, you can summon Police or Fire for any on-campus emergency. You may also set up the complete number, 1-312-355-5555, on speed-dial on your cell phone. For more information contact: http://www.uic.edu/uic/studentlife/campus/emergency-information.shtml” “Emergency Response Recommendations: The emergency response guide can be found at the following website: https://ready.uic.edu/. Please review and acquaint yourself with the guide and recommendations for various emergency situations.”