Tuesday, January 06, 2009

Syllabus for PPD 437

University of Southern California
School of Policy, Planning, and Development
PPD 437 Advanced Finance and Investment for Planning and Development
Course Syllabus – Spring 2009

Instructor name: Richard K. Green
Instructor phone: (213) 740-4093
Instructor email: richarkg@usc.edu

Course Objectives
This course is an introduction to the fundamental concepts and analytical methods used in making investment and financing decisions. During the course we will begin with single unit residential (single family homes or condominiums) finance and work our way to income producing property finance. By the end of the semester, you will be able to evaluate an income producing property and use pro forma analysis to estimate a value and forecast an investment return. This course will provide you with the basic financial analytic tools for understanding the determination of prices and values in the real estate investment, finance and development arena. Topics will include valuation techniques (especially discounted cash flow analysis) and the relationships among them, as well as issues relating to the uses of debt and equity, leases, taxes, and risk analysis.

At the core of the course is the notion of property valuation. We will begin with a very basic, stylized model and gradually add real-world complexity throughout the semester. We will consider investment in both “stabilized” (fully operational) income producing properties as well as development projects as time permits. We will build our models upon the modern corporate finance and investment curriculum, focusing in particular upon discounted cash flow methodology and the tradeoffs between risk and reward.

Reading Materials
The required text for this course is: Brueggeman and Fisher: Real Estate Finance and Investments, Thirteenth Edition. There will also be numerous reading assignments and financial models/templates available on the Blackboard system.

Required Course Materials
All students must have a calculator with financial functions: HIGHLY recommended model is the Hewlett Packard 12C, which will be used for all in-class examples. All other calculators will need to be learned independently. Students must bring calculators to all classes and exams. Students will be at an extreme disadvantaged if they do not have calculators for exams.

Students will need to have access to Excel in order to complete many of the assignments later in the class. Bringing a notebook computer is also recommended.

You must have access to the Wall Street Journal, LA Business Journal, and a business weekly, such as Businessweek. Students should keep abreast of local and national news and trends in the real estate market. The first 5-10 minutes of class will be spent discussing real estate issues in the news. Each of you will be responsible at some point for leading this discussion.

Course Requirements and Grading
The Course is divided into 16 weeks. Everything done in the class is quantified, including attendance, participation, homework, exams, presentations and final project. There are 502 total points that can be earned during the semester. Students will be graded on their performance on a take-home mid-term (75 points or 15.0%), in class mid-term (125 points or 25.0%) and final project (200 points or 40.0%); homework assignments (60 points or 12.0%) and in-class participation, including demonstrating an understanding of the week’s homework assignments and attendance (42 points or 8.0%).

Class meets once weekly, from 6 pm to 9:30 pm on Tuesday, beginning January 13, 2009 and continuing through April 28, 2008. The final project will be due on Tuesday, May 5, 2009.


Homework
Homework will consist of sets and case assignments, which are designed to give the student the opportunity to employ the techniques of valuation and market analysis in a practical context. These assignments will be graded on a full-credit/no credit basis. To receive full credit, the student should have made a reasonable attempt to solve every problem assigned. All homework assignments earn 10 points to each student.

Take-Home Exam
Students will be tested on class material via one take home exam. Students may work independently or in groups of no more than 3 to complete the exam. Students may choose their teammates.

The exam is worth a total of 75 points.

In-Class Exam
Students will be tested on class material via one mid-term. There will be no final exam. Example problems and study guides will be distributed near the date of the exam to familiarize the student to test formats and expectations.

The exam is closed book and is worth a total of 125 points.

Final Project
The culminating learning experience of this class will be a project requiring you to seek out an actual real estate investment opportunity in the Los Angeles area, evaluate that opportunity, and present your findings to the class. Students will be required to work in groups of 3 to 4 for this project, no exceptions. Further details on acceptable property types, deliverables, etc will be discussed later in the semester.

The final project is worth a total of 200 points and will be based upon the report, presentation and internal group evaluation.

Participation
Lectures will take place once a week and attendance is mandatory. You should arrive on time and should not leave until class is dismissed. Students are awarded 3 points for each class attendance. Only verified personal emergencies will be considered excused absences. If a student is absent more than 3 classes then student shall receive zero credit for attendance for the semester and may be subject to an incomplete for the semester. Total attendance represents 8.0% of your total grade.

Disability Services
Any student requesting academic accommodations based on a disability is required to register with Disability Services and Programs (DSP). A letter of verification for approved accommodations can be obtained from DSP. Please be sure that the letter is delivered to me as early in the semester as possible. DSP is located in STU 301; their phone number is 213-740-0776.

Academic Integrity
The use of unauthorized material, plagiarism, communicating with fellow students during an examination, attempting to benefit from the work of another student, allowing another student to benefit from one’s own work, and similar behavior that defeats the intent of an examination or other class work is unacceptable. Where a violation has occurred, the student will receive an F in the class and may be subject to disciplinary action at the University level. Examples of violations include (but are not limited to) copying off another student, allowing another student to copy off your paper, using a “cheat sheet” in any form during an exam, and refusing to stop when time is called.


Week 1: January 13, 2009
Lecture Topics:
• General Introductions
• Introduction to the course, syllabus and expectations
• Introduction to the Real Estate Industry. “Where to find a job?”
o Developers, Builders, Financing, Consultants, Government
• State of the Market lecture.
• Discussion on Legal Concepts (Chapter 1)

Reading assignments: B&F: Chapters 1 & 2

Homework assignment: None


Week 2: January 20, 2009
Lecture Topics:
• Market Topic (RG presents)
• Discussion of Notes & Mortgages (Chapter 2)
• Calculator Tutorial
• Discussion on Time Value of Money and Fixed Rate Mortgages (Chapter 3)
o Notes & Mortgages
o Present Value (PV)
o Future Value (FV)

Reading Assignments: B&F: Chapter 3 & 4


Week 3: January 27, 2009
Lecture Topics:
• Market Topic (Group 1)
• Recap Week 2
• Review PV, FV and Fixed Rate Mortgages (Chapter 4)
• Begin discussion on Adjustable Mortgages (Chapter 5)

Reading assignments: B&F: Chapter 5


Week 4: Feb 3, 2009
Lecture Topics:
• Market Topic (Group 2)
• Recap Week 3
• Adjustable Rate Mortgages (Chapter 5)
• Sample Problem work

Homework assignment #1: Problem Sets (handed out in class)


Week 5: Feb 10, 2009
Lecture Topics:
• Market Topic (Group 3)
• Review Homework Assignment
• Recap Week 4
• Residential Financial Analysis (Chapter 6)
o When to refinance, what loan term to select, what loan structure to choose?
o Current financing failures
• Singe Family Housing: Pricing, Investment and Tax Considerations (Chapter 7)

Reading assignments: B&F: Chapter 6 & 7


Week 6: Feb 17, 2009
Lecture Topics:
• Market Topic (Group 4)
• Residential Financial Analysis (Chapter 8)
o When to refinance, what loan term to select, what loan structure to choose?
o Current financing failures
• Singe Family Housing: Pricing, Investment and Tax Considerations
• Underwriting and Financing Residential Properties
• Key real estate terms/concepts

Reading assignments: B&F: Chapter 8

Take Home Mid-Term Handed Out and DUE WEEK 7

Week 7: Feb 24, 2009
Lecture Topics:
• Market Topic (Group 5)
• Mid Term Review
• Introduction to Income-Producing Properties: Lease Types, Rents, Expense Reimbursements and the Market for Space
• Creating the Static Pro forma (you will need to build a pro forma on the mid term and come to a value)

Reading assignments: B&F: Chapter 9


Week 8: March 3, 2009

Mid Term

Week 9: March 10, 2009
From this point we’ll be using Excel
• Quick Excel Tutorial (if you have notebooks bring them. We may be able to secure a computer lab)
• Offering Memorandum (OM)
o Property Description
o Location Analysis
o Market Analysis
• Three Methods of Value
o Cost Approach

Homework assignment #2: Individually find an income producing property on Loop Net (www.loopnet.com) that is currently for-sale and write-up a Property Description and Location Analysis for the property. Remember, you are pitching this property to potential investors or debt sources so make it sound good.


Week 10: March 24, 2009
Lecture Topics:
• The Three Methods of Valuation
o Cost Approach Review
o Sales Comparison Approach

Homework assignment #3: Find 5 sale comparables on Loop Net or equivalent (actual sales or listings) and use the template found on Blackboard. Adjust your property to the comparables using the adjustment chart found on Black board. Provide a narrative justifying the adjustments and conclude with a Sales Value for your project.


Week 11: March 31, 2009
Lecture Topics:
• Guest Lecturer – Los Angeles area Appraiser
• Income Approach to Value (continued)
o Direct Capitalization Approach to Value (static pro forma)
o Income & Expenses
o Capitalization Rates
• Creating a Discounted Cash Flow (continued)
o Internal Rate of Return (IRR)
o Discount Rate
o Residual Value (Exit Capitalization Rate)
o Net Present Value (NPV)

Homework assignment #4: Individually, pull 5 rent comparables (actual leases or listings) use the template found on Blackboard. Adjust your property to the comparables using the adjustment chart found on Black board. Provide a narrative justifying the adjustments and conclude with a Market Rent for your property.


Week 12: April 7, 2009
Lecture Topics:
• Guest Lecturer – Equity Broker
• Form Final Project Groups
• Analyzing the capital stack
o Sources of capital
o Debt vs. equity
• Calculating Leveraged Returns
• Modigliani-Miller

Homework assignment #5: In your group, go out and find an income producing property (this is the start of your Final Project). Property must be submitted with property and location descriptions along with photos and a brief paragraph explaining why the property was selected. Additional information will be provided in class. Assignment will be due the beginning of Week 15.


Week 13: April 14, 2009
Lecture Topics:
• Guest Lecturer – Los Angeles area Equity Investor (Chris Chee, Blackstone)
• Case Studies

Reading assignment: A case study will be handed out for review. We will discuss in detail following week.


Week 14: April 21, 2009
TBD

Week 15: April 28, 2009
Lecture Topics:
• Primer on the Development Process and financing
• Review and question answer session


Week 16: May 5, 2009
• Presentations (20 Minutes each)

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This syllabus is similar to that of the “Real Estate Development” Course in my university.

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