REAL ESTATE FINANCE
FIN 225f (2)
Fall 2014
Monday & Wednesday, 11:00 pm – 12:20 pm
Location: Lemberg 54
Edward Chazen, Senior Lecturer
echazen@brandeis.edu
Sachar 208
(781) 736 4825
OVERVIEW
This course serves as a follow-on to BUS 235f, Real Estate Fundamentals, with a focus on debt and
equity financing of income-producing real property, primarily in the U.S. market. Using case
discussion, lectures, problem solving exercises, simulation of negotiation and guest speakers, the
course considers real estate finance from the perspective of the users of capital (developers and
property owners) and the sources of capital (lenders and equity investors). The primary student
outcome is the ability to analyze a real estate financing for debt and equity, discuss and present a
professional financing request for debt and equity, and understand how to structure a financing of a
commercial real estate property.
LEARNING GOALS & OUTCOMES
Understand the sources and uses of real estate capital: characteristics, pricing, structuring of terms
and risks of different components of the real estate “capital stack”
Be familiar with the underwriting and basic business terms of each type of real estate financing:
construction loans, permanent loans, joint ventures, hybrid debt-equity financing, REITs and CMBS
Estimate the financing capacity and metrics of income-producing properties via a cost basis,
direct capitalization approach and a DCF analysis
Understand the relationship between leases, cash flow and property financing
Understand the modeling of cash flow projections and its role in structuring property financing
Determine a basic capital structure and legal issues for financing a property acquisition; gain an
understanding of loan work-outs and borrower-creditor rights
PREREQUISITE: BUS 235f. (No exceptions!)
beforehand or concurrently with this course.
Highly recommended is FIN 202a, either taken
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COURSE REQUIREMENTS
Required Reading
There are three HBS cases and one HBS note that you will need to buy. I will post on LATTE two
cases study I wrote (one is a written case study assignment) and interesting articles about the financing
of commercial real estate.
Students will be required to purchase selected chapters from Real Estate Finance and Investments,
14th edition, Brueggeman & Fisher published by McGraw-Hill Irvin. The selected text chapters
provide helpful supplemental reading for the class lectures. Follow these steps to purchase the eBook from
the publisher. The cost is $28; it will save you about $100 compared with purchasing the entire text book –
which you do not need for this course.
1. Go to http://create.mcgraw-hill.com/shop/
2. Search for and select book by Title, ISBN, Author, or State/School.
3. ISBN: 9781121981232
4. Title: Real Estate Finance
I have established the following coursepack with HBS Publishing; look for Real Estate Finance 2014.
https://cb.hbsp.harvard.edu/cbmp/access/30138630. This is where you can purchase the HBS cases and
Note required for the course.
If you have not registered with Harvard Business Online, you will be required to do so. Electronic
course materials are in PDF (Portable Document Format) and should be viewed with Adobe Reader,
available free at www.adobe.com. Students can access PDF files of course materials via a link on
Harvard Business Online for six months from the date of purchase. You will have immediate access to
the materials upon placing your order, for subsequent access, you must login to
http://harvardbusinessonline.org I hope you find this a convenient way to access your course materials.
For technical assistance, please view the Quick Tips section or contact HBS Publishing at 1-800-8108858 or 617-783-7700, from 8am-6pm. They can also be reached at techhelp@hbsp.harvard.edu
Attendance and Participation
Class attendance is required. Class participation is critical; to ensure an effective process, students are
expected to use name cards at every session. For five (5) classes there will be a case assigned and
every student is expected to come prepared to discuss it in detail.
Academic Honesty
You are expected to be honest in all of your academic work. Instances of alleged dishonesty will be
forwarded to the Office of Campus Life for possible referral to the Student Judicial System. Potential
sanctions include failure in the course and suspension from the University. For the University policy
on academic honesty, please see section 5 of the Rights and Responsibilities Handbook.
Disabilities
If you are a student with a documented disability on record at Brandeis and wish to have a reasonable
accommodation made for you in this class, please see me immediately. Please keep in mind that
reasonable accommodations are not provided retroactively.
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Grading
Students will be graded on their class participation, homework assignments, mid-term exam and
written case study assignments.
CLASS PARTICIPATION*
20%*
(see asterisk below)
* You are expected to attend every class. Attendance will be taken and unexcused absences will result in a
reduction in your Class Participation grade. Please do NOT schedule job interviews during class time, nor
should you commit yourself to outside internships or Brandeis IBS club activities that conflict with your class
responsibilities. Excellent attendance, with no class participation, results in a class participation grade of C+. If
you ask good questions and offer interesting comments you can earn a higher grade. I will randomly call on
students to encourage broad class participation, so be prepared.
HOMEWORK ASSIGNMENTS (5% each)
15%
MID-TERM EXAM
20%
The mid-term exam will include material we cover during the first 7 classes, and will require use of
Excel-based computations. We will practice these prior to the actual exam.
WRITTEN ASSIGNMENTS
Millegan Creek Apartments
Five and Six Dulles Station
Burlington Woods Office Park
45%
(15%)
(15%)
(15%)
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COURSE MATERIALS
TEXT BOOK
Real Estate Finance and Investments, 14th edition, Brueggeman & Fisher
HBS CASES
Millegan Creek Apartments
Five and Six Dulles Station
Bourland Companies
(9-395-118)
(9-210-047)
(9-395-151)
HBS NOTE
Technical Note on Financial Leverage in Real Estate
CHAZEN CASES (posted on LATTE)
Burlington Woods Office Park
Sunshine Ridge Apartments
ARGUS
ARGUS is a sophisticated financial analysis program that allows users to analyze and forecast cash
flows of all types of commercial real estate. It is very useful to prepare scenarios of different
assumptions in a cash flow projection. Most jobs in the real estate industry suitable for recent MBA
graduates require familiarity with Argus and it typically is asked at job interviews. You can advance
your job prospects if you are familiar with Argus.
Brandeis will offer an Argus class on Friday, November 7th and all students are encouraged to register.
Your only cost is $99 to purchase a 6 month (optional) software license to use Argus on your personal
computer. The instructor works for Argus and the class will start at 9 am and end at 4:30 pm. Further
registration information will be available closer to the Argus class date.
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COURSE OUTLINE
study guides and/or assignments for each class are posted on LATTE
Graded case studies are in bold type font
DATE
CASE/READINGS
TOPIC
10/22
Brueggeman & Fisher,
Chapter 2, pp 16- 25;
Introduction to real estate finance
Common real estate finance terms
10/27
Bruggeman & Fisher,
Chapter 11, pp 352-362
Underwriting a financing
Analysis in real estate finance
Technical Note on Financial Leverage in Real Estate
Homework: 2 problem sets
10/29
Case: Bourland Companies
Long term property financing
11/3
Bruggeman & Fisher,
Chapter 16, pp. 508-540
Homework: 2 problem sets
Construction loans
Risks in financing development
11/5
Case: Millegan Creek Apartments
Construction financing
11/10
No readings assigned
Guest speaker; Matthew Osborne
Senior VP, Eastern Bank
11/12
Bruggeman & Fisher,
Chapter 12, pp. 396-410
Chapter 18, pp, 579-588
Homework: 2 problem sets
Joint ventures and hybrid debt/equity
financing
11/17
Mid-Term Exam
11/19
Case: Five and Six Dulles Station
Structuring a joint venture
11/24
Articles on LATTE
Public debt and equity real estate market
12/1
Bruggeman & Fisher,
Chapter 2, pp 26-39
Distressed debt and loan workouts
12/3
Case: Burlington Woods Office Park
Re-structuring a distressed property
12/8
Case: Sunshine Ridge Apartments
Debt and equity for value investing
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