University of Southern California
Marshall School of Business
Department of Finance and Business Economics
FBE 400X
Robert Bridges, A.I.A.
FBE 400X Introduction to Real Estate Finance and Development
Course Overview:
This course examines the ownership of real estate from the perspective of an
investor with little prior exposure to real estate finance or economics. Utilizing
575 Robinson Blvd. - an extensive case study that traces the growth in
understanding on the part of an individual who is considering one of the largest
and most important investments of his life – the course explains in detail the
basic financial concepts that are central to real estate analysis. It begins with an
evaluation of how real estate properties are valued, from the interdisciplinary
perspectives of owner, developer, appraiser, lender, and, importantly, from the
point of view of a purchaser. It progresses through an evaluation of the issue of
risk; both from fluctuation in income and value on a property level, but also
whether the particular risk that a real estate investment may pose is consistent
with an individual’s financial objectives.
The course explores the economics of the purchase of existing properties, but
also the development of properties with fixed attributes; sites with a given land
cost and on which building types and sizes are predetermined. It ultimately
focuses on the issue of highest and best use. From an investor’s or developer’s
standpoint, what is the use for the property that produces the highest financial
return? And a related question: What should be paid for a property given the
range of development options and investor expectations?
Computer applications for financial and market analysis, as well as those that
dovetail into building design, are introduced during class and laboratory
exercises.
FBE 400X is one of the electives for the undergraduate business minor.
Students successfully completing this course will be eligible to participate in FBE
466, which is a more advanced exploration of the topic of real estate
development. It is hoped that students, particularly those majoring in design and
construction management, will consider participation in both FBE 400X and FBE
466 to gain a thorough exposure to real estate finance and economics, as well as
the development process.
Learning Objectives:
Robert Bridges, A.I.A. Page 1 of 7
Upon successful completion of this course, students will have a practical
understanding of the way in which the various disciplines of finance, economics
and design are integrated in the context of real estate ownership and
development. Students will be able to value income-producing properties,
analyze financial instruments such as mortgages and loans, as well as
understand how real estate markets and market cycles affect the underlying
value of real property.
Those completing the course will have experience in using computer applications
for solving financial and economic problems in real estate, as well as having a
working knowledge of industry terminology, practice, and procedures.
Course Organization:
This course is in lecture format with a number of assignments including
spreadsheet exercises, case analyses, a mid-term and final exam. The class
meets twice weekly and students are expected to have read the textbook and
other assigned material prior to the classes during which the topics are to be
discussed.
Grading Criteria:
Mid-Term Exam
Final Exam
Assignments
Attendance, preparedness and making a meaningful contribution
to the intellectual environment of the classroom
30%
30%
30%
10%
Assignments:
The assignments will be drawn from the case, and from the back of the chapters
in the textbook, computer laboratories, or will be related to current and
newsworthy material covered in class.
All homework assignments must be submitted in printed form during the class
session on the day they are due. No late work will be accepted.
Textbook, Equipment, Cases and Readings:
Bridges, Robert, and Dale-Johnson, David 575 Robinson Blvd.
(This case, and other materials, will be available from the instructor at the
beginning of the term)
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Wurtzebach, Charles H. and Miles, Mike E., Modern Real Estate, 5th edition,
Wiley and Sons, New York,
The student is required to have a financial calculator during each class session,
and must have a thorough working knowledge of its operation prior to the
beginning of the course. The Hewlett-Packard 17B II will be used by the
instructor for the course, and no class time will be devoted to the operation of
other calculator models.
Computer exercises will be conducted using the latest version of Microsoft Excel.
Students are advised to gain a basic understanding of the program, and have
access to a computer for homework exercises.
Students should read the Wall Street Journal regularly in order to track real
estate market and mortgage market activity. Also, in Barron’s, The Ground Floor
column is periodically devoted to real estate. The Los Angeles Business Journal
is the best periodic source of local information and news on California and Los
Angeles regional real estate activity.
Class Meetings:
Note: Student readings from the 575 Robinson Blvd. case in preparation
for lectures and class sessions are shown in boldface type.
Week 1
Course Overview
(No student preparation required)
Week 1
The Financial Calculator
Section 1, 575 Robinson Blvd.
(Students must have course text and financial
calculator in class for all sessions beginning with
this session)
Robert Bridges, A.I.A. Page 3 of 7
Week 2
Mathematics of Finance: Present Value and Net
Present Value
Section 2: 575 Robinson Blvd. Case (For Study)
Week 2
Mathematics of Finance: Present Value and Net
Present Value
Section 2 and 3: 575 Robinson Blvd. Case
Week 3
Mathematics of Finance: Internal Rate of Return
Section 4: 575 Robinson Blvd. Case
Week 3
Basic Finance Review and Exercises
Section 4: 575 Robinson Blvd. Case
Week 4
University View Case Computer Lab: Introduction to
Spreadsheet Computer Applications
University View Case (Unleveraged): To be
distributed by instructor
Week 4
The Pro-Forma Statement of Project Income
Section 5: 575 Robinson Blvd. Case
Week 5
Computer Lab: The Pro-Forma Statement of Project
Income
Section 6: 575 Robinson Blvd. Case
Week 5
Leveraged Analysis
Section 6: 575 Robinson Blvd. Case
Week 6
Annuities
Section 7: 574 Robinson Blvd. Case
Robert Bridges, A.I.A. Page 4 of 7
Week 6
University View Case Computer Lab: Leveraged
Analysis
The University View Case (Leveraged): To be
distributed by instructor.
Week 7
Real Estate Loans
Week 7
Fixed Rate Loans
Section 7: 575 Robinson Blvd. Case
Week 8
Variable Rate and Other Loans
Section 8: 575 Robinson Blvd. Case
Week 8
The Lender’s Perspective: The Property
Section 8: 575 Robinson Blvd. Case
Week 9
Review
Week 9
Mid-Term Examination
Week 10
Review Corrected Exams, The Lender’s Perspective:
The Borrower
Section 9: 575 Robinson Blvd. Case
Week 10
Appraisal: The Reasons for Appraisal, Historical
Perspective
Section 9: 575 Robinson Blvd. Case
Week 11
Appraisal: The 3 Approaches
Section 9: 575 Robinson Blvd. Case
Week 11
Market Analysis: Supply and Demand
Section 10: Market Analysis
Week 12
Market Analysis: Market Timing and Net Absorption
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Section 10: Market Analysis
Week 12
Slack
Week 13
Market Analysis: Market Timing and Net Absorption
(Continued)
Section 10: Market Analysis
Week 14
The Purchase Decision: Developer Returns
Section 11: The Purchase Decision
Week 14
The Purchase Decision: The Revised Pro-Forma
Section 11: The Purchase Decision
Week 15
The Development Process
Section 12: The Development Process and the
Concept of Highest and Best Use.
Week 15
Residual Land Value and the Optimization Model
Section 12: The Development Process and the
Concept of Highest and Best Use.
Exam Preparation and Review
Final Exam
Location and Time: TBA
Instructor Access:
The instructor will hold office hours by appointment only.
E-mail is the preferred method of communicating with the instructor.
Campus Office:
301f Accounting
E-mail: rbridges@marshall.usc.edu
Academic Integrity:
Robert Bridges, A.I.A. Page 6 of 7
The use of unauthorized material, communication with fellow students during an
examination, attempting to benefit from the work of another student, and similar
behavior that defeats the intent of an examination or other class work is
unacceptable to the University. It is often difficult to distinguish between a
culpable act and inadvertent behavior resulting from the nervous tensions
accompanying examinations. Where a clear violation has occurred, however, the
instructor may disqualify the student’s work as unacceptable and assign a failing
mark on the paper.
Returned Paperwork:
Returned paperwork, unclaimed by a student, will be discarded after 4 weeks
and, hence, will not be available should a grade appeal be pursued by a student
following receipt of his/her grade.
Students With Disabilities:
Any student requesting academic accommodations based on a disability is
required to register with Disability Services and Programs (DSP) each semester.
A letter of verification for approved accommodations can be obtained from DSP.
Please be sure the letter is delivered to the instructor as early in the semester as
possible. DSP is located in STU 301 and is open 8:30 a.m. - 5:00 p.m., Monday
through Friday. The phone number for DSP is (213) 740-0776.
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