COLUMBIA GRADUATE SCHOOL OF BUSINESS

This course focuses on concepts and techniques used to analyze and finance income-producing property investments. It aims to provide students -- as future entrepreneurs, investors, investment bankers or lenders -- with quantitative skills and a critical perspective for making financial decisions about real estate. Special emphasis is given to examining the nature of real estate risk, at both the level of the individual project and the investment portfolio. Relying heavily on case discussions, class sessions consider how economic characteristics of the property and the local market, motives of different actors, and institutional arrangements interact to shape decision-making in real estate.

Covers the nature of the real estate asset, property economics and discounted cash flow analysis, valuation, market analysis, the mechanics of leverage and debt financing, the taxation of real estate and risk analysis.

Focuses on the issue of capital structure and address the question: how much debt for a project, in what form? Topics include construction financing, debt instruments, REITs and financial strategies for managing risk. Pubic and private market issues are also addressed.

Applies the tools developed in Parts I and I to case problems. The cases examine the investment management of existing assets, acquisition pricing of real estate, repositioning of real estate assets and the real estate development process. In addition, through cases and other materials, this section compares and contrasts institutional and entrepreneurial objectives and strategies for investing in real estate.

The course uses the case method of instruction integrated with lectures and discussions. With case discussions of actual problem-solving situations you learn through in-depth analysis prior to class, and, most importantly, through the dynamics of group discussion in class. Students should be prepared to discuss all elements of the case, and the professor reserves the right to call upon any student during the case discussion to present his or her views on the subject matter.

There are two required purchases for the course:

(1) a text (T), W.B. Brueggeman and J.D. Fisher, Real Estate Finance, Tenth edition (Homewood, Il.: Irwin, 1997), available for purchase at the Columbia University Book Store at 1187 Amsterdam avenue, corner of 118 street. Telephone # (212)854-9272.

(2) a case packet (CP) containing cases and additional required reading material listed on the syllabus.

1. Quant Exercise and Investment Recommendations: You are required to submit the numbers for The Associate's Task (AT) case October 5th, PLUS a recommended investment strategy for each of the two investors mentioned in the case on October 12th. Each investment memo is NOT to exceed one single-spaced typewritten page. [You are encouraged to append summary financial exhibits in support of points in your text.] AT can be completed on a computer spreadsheet the template (without the formulas) is on the School�s network under the title "Associate." You may work with up to two other persons (who must be identified on your submissions) in developing the spread-sheet model, though some people have found this less than ideal because they learn best by doing themselves. Our suggestion is to work in groups figuring out the concepts and if you construct the model together, make sure that each of you works on the formulas or a particular exhibit and maintains your own disk copy of the file. If you work in a group, you may turn-in one spreadsheet with the names of the other group members. However, the investment recommendations due October 12th are to be individual work.

2. Case Analyses. You are to prepare TWO written cases, one case analysis must come from Group A and another, from Group B. All submissions should be typed, single or double-spaced, with normal size font and 1" margins left, right, top, and bottom. Submissions that exceed the page limit will be returned ungraded. The idea is to be complete and concise. Although you may discuss the case in a study group, the text, plus any quantitative analysis, must be prepared individually. If you do discuss the case with any classmates, you must list the names of those you worked with on the front cover of your case. These written assignments are due at the beginning of class the day the case is to be discussed. Late submissions are not accepted.

For the Group A case analysis: These are quantitative in orientation they have a specific financial problem to be solved. The case write-up is to be no more than three pages plus up to four pages of exhibits. Your write-up should include specific financial calculations, as well as a set of specific recommendations based on the qualitative and quantitative aspects of the case.

Group A
Graybar Syndications
Savannah West
Textile Corporation Building

For the Group B case analysis: These cases are of a more general character the problem focus is larger than those in Group A. For one of these cases, you are to prepare a one-page analysis of the case problem with a set of recommendations you may attach two additional pages of back-up material, either a summary of the key financials relevant to the argument of the case, or a set of bullet points as if you were making a presentation to an investment committee. The objective here is to cultivate your skills at analyzing a case within 3-4 hours and organizing that analysis into a coherent and persuasive presentation.

Group B
JMB Growth Fund
Relative Value Analysis to the Borrower and Lender
Tysons Corner

3. Case Precis. For 3 of the 4 remaining cases that you do not submit a full case write-up, you are required to submit at the beginning of class a brief statement (within one page) of the nature of the problem to be solved and the key analytical components (qualitative and/or quantitative) of the case. The goal here is cultivate a "quick-read approach" to problem solving. These will not be returned nor will they be assigned a numerical grade, but failure to submit will count against your class participation grade. Also, a sloppy or very incomplete precis will not be accepted as a submission.

Course grades will be determined on the following basis:

INSTRUCTORS

PROFESSORS BARBARA CHU AND ELAINE A. SARSYNSKI, [email protected], Uris 622,
Phone: 854-3471
Office Hours: Monday 10:30 am -11:30 am, Wednesday 10:30 am-11:30 am
We will check e-mails regularly and will respond quickly to any questions or concerns.

Teaching Assistants: TBD , email:
office hours by appointment.

COLUMBIA BUSINESS SCHOOL

Assignment and Reading List

Introduction to the real estate business and the asset. Overview of analytical framework for project finance.

REQUIRED:

J. Thomas Black, "Consolidation in the Commercial Real Estate Industry," in ULI on the Future: Creating Tomorrow�s Competitive Advantage (Washington, D.D.: The Urban Land Institute, 1996), pp. 4-9. (CP)

C. B. Leinberger, Strategy for Real Estate Companies: Marketing, Finance, Organization (Washington, D.C.: The Urban Land Institute, 1993), Chapter 3. (CP)

M. L. Lachman and D. Brett, "Real Estate Investment Today and in 2000: What�s on the Investment Horizon? Schroder Real Estate Associates Commentary, Winter 1997. (CP)

September 14: INCOME AND EXPENSE ANALYSIS

Pro-forma analysis, before-tax cash-flow accounting, financial ratios, rate-of-return measures.

REQUIRED:

W.B. Brueggeman and J.D. Fisher, Real Estate Finance, tenth edition (Homewood, Il.: Irwin, 1996), pp. 236-257, 307-313. Subsequently, referenced as BF. (T)

V. Martin III, "Nine Abuses Common in Pro Forma Cash Flow Projections," Real Estate Review 18(Fall 1988): 20-25. (CP)