Real Estate Finance

Professor Barney Hartman-Glaser Finance 898 Real Estate Finance Duke University, Fuqua School of Business Description This course will consist of 50% Real Estate investment analysis and 50% Real Estate Capital Markets. The course should be of interest for students interested in real estate investment, real estate ? nance, ? xed-income investments, and the recent global ? nancial crisis. Real Estate Investments The course will begin with an introduction to the fundamentals of Real Estate valuation and risk analysis including a consideration of the elements of mortgage ? ancing and taxation as well as the mechanics of commercial real estate leasing. The asset types we will consider include o? ce buildings, apartments, residential single family, and retail. Real Estate Capital Markets We will consider the operation of the U. S. mortgage and structured ? nance markets and study how these markets interact with the broader economy, particularly the banking sector and main street. The course covers both technical topics (e. g. valuing complex structured securities), and applied topics (such as the connection between securitization and the global ? ancial crisis). Contact Information and Email Policy Instructor: Barney Hartman-Glaser email: [email protected] edu Response Policy: I will not respond to emails sent after 6 pm eastern time until the next day. Admin Assitant: Liz Lindsey email: liz. [email protected] edu Materials The course material will consist of a pre-reading handout, lecture notes, cases, a text book, various articles and optional (but recommended) books. Lecture notes will be available in class as well as on the web. Cases and articles will be available in your course-packs and some case exhibits will be available on the web.

Note that the schedule lists MORE READING THAN IS NECESSARY. The readings are meant as an optional supplement to the material we cover in lecture. I do not expect you to read everything I have included in the schedule. I expect you to “skim” the reading to get a general idea of what’s going on. Also, Real Estate is an industry with a large amount of “jargon” and rather than spend time on vocabulary in lecture, I will suggest that you look at the suggested text books to learn the industry-speak. 1 Optional Books • “Real Estate Finance and Investments”, by Bruggeman, William and Je? ey Fisher. Fourteenth Edition. McGraw-Hill Irwin, 2010. • “Mortgage-Backed Securities: Products, Structuring and Analytical Techniques”, by Fabozzi, Bhattacharya, and Berliner. Second Edition. Wiley, 2011. • “The Big Short: Inside the Doomsday Machine”, by Michael Lewis. W. W. Norton & Company, 2010. • “The greatest trade ever”, by Gregory Zuckerman. Broadway Books, 2009 Grading and Deliverables Grades will be determined by the following rule 10% pre-reading questions, 10% class participation, 40% case write-ups, and 40% ? nal exam.

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Pre-reading assignment You will have to turn an answer to the pre-reading questions on the ? rst day of lecture. This problems should not be too hard and is meant as a warm up for the lectures. Class participation The course depends heavily on student participation. Students are expected to prepare for each class in advance, attend each class and contribute throughout the course. Please bring your name cards to class and display them prominently. Absences from class and unprepared attendance at class will a? ect class participation grades materially.

I will be doing some random cold calling. Case assignments There will be two case assignments that will consist of written questions. Both quantitative and qualitative questions will be asked. Case assignments should be done in groups of 4. Final project The ? nal project will consist of ? nding a prospectus from a real mortgage backed security and preparing your choice of a pitch book or executive summary investment analysis as well as Powerpoint slides for the deal. Written materials should not exceed 5 pages double spaced excluding appendices. More information on the ? al project will be given out once we have covered more material. There will be a template excel valuation model available, so the technical aspect should be relatively limited. Like the case assignments, the ? nal project should be done in groups of 4. 2 Final Exam At the time of preparation of this syllabus, the ? nal exam date is unknown. You will have a 90 minutes to complete the exam. The exam will cover all topics from the course. A practice exam will be distributed. Homework Groups Your case assignments and the ? nal project will be done in groups of 4. In an e? rt to facilitate groups of diverse talents, I will ask students to form their own groups using the following guidelines: at least two members that don’t know each other well and intellectual diversity. I recognize that this is a ? nance elective and so most of you will have a strong interest in ? nance so that intellectual diversity will be di? cult to establish. Just do your best. 3 Schedule Date and Time September 29 8:30 am October 29 4:00-6:15 pm Event Type Due Date Description Pre-reading assignment Lecture 1. Introduction to course, review of pre-reading material, leases Readings: Brueggeman and Fisher : Chapter 9 November 1 4:00-6:15 pm Lecture 2. The real estate Pro Forma and valuation (including taxes and ? nancing) Readings: • Brueggeman and Fisher : Chapters 10 and 11 November 5 4:00-6:15 pm Lecture 3. Real Estate Equity Syndication/REITS Readings: • Brueggeman and Fisher : Chapters 18 and 21 November 8 4:00 pm November 8 4:00-6:15 pm Due Date Angus Cartwright Case Writeup Lecture 4. Angus Cartwright Case Discussion/Urban Economics Readings: • Brueggeman and Fisher : Chapters 9 and 13 • “Real Estate Development as an Option,” by Williams November 12 :00-6:15 pm Lecture 5. Appraisals Readings: • Brueggeman and Fisher : Chapter 10 • “Zillow’s Estimates of Single-Family Housing Values,” by Hollas, Rutherford, and Thomson November 15 4:00-6:15 pm Lecture 6. Residential and Commercial Mortgages Readings: • Brueggeman and Fisher : Chapters 3-6 November 19 4:00 pm Due Date Rosetree Case Writeup Due 4 Date and Time November 19 4:00-6:15 pm Event Type Lecture 7. Description Rosetree Mortgage Opportunity Fund Case Discussion/Mortgage Backed Securities Readings: • Brueggeman and Fisher : Chapters 19 and 20 November 26 4:00-6:15 pm Lecture 8.

Mortgage Backed Securities Cont. Readings: • Brueggeman and Fisher : Chapters 19 and 20 November 29 4:00-6:15 pm Lecture 9. Prepayment and Default Modeling Readings: • Fabozzi et al : Chapter 12 and Appendix December 3 4:00-6:15 pm Lecture 10. Final Project Workshop Readings: • MBS Prospectus December 6 4:00-6:15 pm Lecture 11. The Subprime Mortgage Crisis Readings: • “Mortgage Origination and Securitization in the ? nancial Crises,” by Ja? ee, Lynch, Richardson, and Van Nieuwerburgh • “House Prices, Home Equity–Based Borrowing, and the US Household Leverage Crisis,” by Mian and Su? “Mortgage Guarantee Programs and the Subprime Crisis,” by Ja? ee and Quigley • “Consumers and the Economy, Part II: Household Debt and the Weak U. S. Recovery,” by Mian and Su? • “Did Securitization Lead to Lax Screening? : Evidence from Subprime Loans,” by Keys, Mukherjee, Seru, and Vig December 10 4:00 pm Due Date Final Project Writeup 5 Date and Time December 10 4:00-6:15 pm Event Type Lecture 12. Description Final Project Presentations/Final Review Session Readings: • Practice Final Exam • Final review topic list 6

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