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UNIVERSITY OF SOUTHERN CALIFORNIA Course Outline
School of Policy, Planning and Development Spring 2000
MRED 544 - Real Estate Capital Markets
Professor Richard K. Green
213-740-4093
A. Introduction and Overview
This course is intended to link the world of theory and analysis to the world of the practitioner in the context of real estate investment activity. It is a course about equity. The course will be taught in modules, treating within each module a particular real estate investment topic in some depth. Modules will include:
1. Installment Sales, Property Exchanges, and Sale-Leasebacks
2. Real Estate Investment Tax Credits (Low Income Housing, Historic Rehabilitation)
3. Limited Partnerships and Syndications
4. REIT's
5. Institutional Real Estate Investment and Portfolio Considerations
6. International Real Estate Investment
The second half of the course (modules 4, 5) will deal heavily with the public markets in real estate. This section of the course will provide the student with the necessary skills to evaluate real estate investment opportunities in the public markets, both from the standpoint of individual investments and in a portfolio context.
B. Course Requirements
The course requirements include homework, two in-class examinations, two “buy” reports for public real estate companies, and class participation in cases and lectures.
1. Homework. Several homework assignments will be handed out and will be expected to be completed and turned in. These typically will be problems applying the materials learned in class, oftentimes using spreadsheet analysis.
2. Examinations. Two examinations will be given. The first will cover the material presented in modules 1-3 above and will be administered one evening during the week of March 22-26. The second will cover the material presented in modules 4-6 above and will be administered during the regular final exam period. You will have three hours to take each exam.
3. Private Equity Case. There will be a private equity case in which you will be asked to make recommendations to an investment committee. You will do this in teams of two.
4. REIT “Buy Reports”. One “buy reports” will be completed which will evaluate the expected operating and share price performance of a publicly-listed real estate company, either a REIT (real estate investment trust) or REOC (real estate operating company). The “buy reports” will be undertaken by teams on a single entity selected by me. We will have an executive from the company present a road show.
These reports are expected to be of a quality comparable to buy reports undertaken by professional securities analysts, both in terms of substance and appearance. Written reports will be turned in, and oral presentations will be made by each team before the rest of the class.
5. Class Participation. A portion of the course grade will be based upon a student's involvement in lectures and buy report presentations.
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6. Grading. Final course grades are determined as a weighted average of each component as follows:
a. In-Class Examinations (2 @ 20%) 40%
c. Buy Report
Case I 25%
Case II
Written Report 25%
Oral Presentation 15%
d. Class Participation 5%
100%
C. Course Materials and Readings
The basic reference text to be utilized is Real Estate Finance and Investments, 12th Edition, by William Brueggeman and Jeffrey Fisher (Irwin: 2008), which you should have already from MRED 542 . See me if you have a problem.
All required readings, case materials, and overheads will be available on blackboard or the web. Readings should be read prior to lecture, if possible, to obtain maximum benefit from the lecture.
D. Logistics
The class meets Tuesdays from 6:30 – 8:20 p.m. in RGL 101. Professor Green's office is in RGL 331(b) (phone 213-740-4093). Regular office hours are 4:30 – 6 pm, Tuesday/Wed. or by appointment through Nina Tibayan ()
E. ACADEMIC DISHONESTY
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. You are responsible for knowing the USC student code of conduct.
F . DISABILITY STATEMENT
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 me (or to
TA) as early in the semester as possible. DSP is located in STU 301 and is open early 8:30 a.m. -
5:00 p.m., Monday through Friday. The phone number for DSP is (213) 740-0776.
G. Schedule of Lectures and Readings
(Note: With the exception of exams, all dates are approximate, depending on progress made in the lectures and class discussions.)
Introduction and Overview (August 26)
Readings:
Where we are: Richard Green powerpoint.
I. Installment Sales, Property Exchanges, and Sale-Leasebacks (Sept 2 and Sept 9)
Readings:
Brueggeman and Fisher, “Sale-Leaseback of the Land,” pp. 368-377.
Brueggeman and Fisher, “Sale-Leaseback,” pp. 451-454.
Harris, J.C., “The Role of Exchanges in Real Estate Markets,” Real Estate Center Technical Report 1004, Texas A&M University, September 1993.
Haynes, Joel A. and Bruce M. Bird, “The Deferred Like-Kind Exchange,” Real Estate Review, Winter 1995, pp. 54-59.
Auster, Rolf, “Tax Implications of Taxable Sales vs. Tax-Free Exchanges,” Real Estate Review, Vol. 28:2, Summer 1998, pp. 49-53.
Bird, Bruce M. and Joel B. Haynes, “Doubling Your Pleasure: Combining Deferred Like-Kind Exchanges with Installment Sales,” Real Estate Review, Spring 1996, pp. 69-75.
II. Real Estate Investment Tax Credits (Low Income Housing, Historic Rehabilitation) (Sept 16)
Readings:
McQuiston, Julian A., “Tax Credits Fuel Growth of Affordable Housing,” The Real Estate Finance Journal, Vol. 12:4, Spring 1997, pp. 63-67.
“Low Income Housing Tax Credit,” in Housing and Development Reporter, Warren Gorman Lamont, July 25, 1994, pp. 81:0011 – 81:0030.
Fried, J. Michael, “Low-Income Housing Tax Credits -- an Update,” Real Estate Finance Journal, Summer 1991, pp. 42-49.
Crumbley, D. Larry and Anthony Billings, “Rehabilitating Historical and Older Buildings,” Technical Report, Real Estate Center, Texas A&M University, September 1988.
Bunn, R. and F.J. Ingram, “Rehabilitation Tax Credits: A Surviving Tax Shelter,” Real Estate Review, 17:4, Winter 1988, pp. 96-99.
Bird, Bruce M. and Joel B. Haynes, “The Rehabilitation Tax Credit – A Neglected Tax Relief,” Real Estate Review, Vol. 27:3, Fall1997, pp. 73-76.
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III. Limited Partnerships and Syndications (Sept 23)
Readings:
Brueggeman and Fisher, Chapter 18, “Partnerships, Joint Ventures, and Syndications,” pp. 393-419.
Peiser, Richard, “Balancing Capital Accounts in Real Estate Limited Partnerships,” Real Estate Review.
Shenkman, Martin M., Samuel Weiner, and John Carbone, “Limited Liability Companies: A New Opportunity for Real Estate Investors,” Real Estate Finance Journal, Winter 1995, pp. 22-29.
EXAM 1 (Sept 30) covering material through III.
IV. REIT's (Oct 7, 14 and 21)
Readings:
Brueggeman and Fisher, Chapter 21, “Real Estate Investment Trusts (REITS),” pp. 661-681.
Merrill Lynch, REIT Primer. 2009
NAREIT, REIT Watch. 2009
Recent web readings to be announced.
Giliberto, S. Michael, “An Overview of Real Estate Investment Trusts,” Salomon Brothers Real Estate Research, February 6, 1992.
“REIT Market Directions at the Brink of a New Century: Six Symposiums,” Real Estate Review, Vol. 28:3, Fall 1998, pp. 5-26.
Knight, R.A. and L.G. Knight, “REIT's Reemerge as Attractive Investment Vehicles,” Real Estate Review, 22:2, Summer 1992, pp. 42-48.
Decker, Mark O., “The REIT Resurgence: A Resilient Industry Rebounds,” The Real Estate Finance Journal, Summer 1997, pp. 58-59.
Wooley, Suzanne and Kathleen Morris, “The New World of Real Estate,” Business Week, Archives, September 22, 1997.(http://www.businessweek.com/1997/38/b3545001.htm)
Ziering, Barry, Bernard Winograd, and Will McIntosh, “The Evolution of Public and Private Market Investing in the New Real Estate Capital Markets,” Real Estate Finance, 14:2, Summer 1997, pp. 21-28.
Ziering, Barry, Bernard Winograd, and Will McIntosh, “Tracking a Capital Market Transformation: Public Market Commercial Real Estate Penetration,” Real Estate Finance, 14:3, Fall 1997, pp. 15-22.
Muldavin, Scott R., “Net Asset Value ‘Premiums,’” Real Estate Finance, 14:2, Summer 1997, pp. 74-78.
Downs, Anthony, “Public, Private Market Valuations Do Diverge,” National Real Estate Investor, December 1994, pp. 20 ff.
Ziering, Barry, and Louis Taylor, “The Real Estate Benchmarks and the Public Market Real Estate Dynamics Shaping Them,” Real Estate Finance, Vol. 15:2, Summer 1998, pp. 7-21.
Vandell, Kerry D., Strategic Management of the Apartment Business in a “Big REIT” World, National MultiHousing Council, 1998.
Brody, M.J. and D.S. Raab, “A Primer on REIT's and Umbrella Partnership REIT's,” The Real Estate Finance Journal, Winter 1994, pp. 35-40.
Scherrer, Phillip S., “UPREITs: Their Time has Come for the Chosen Few,” Real Estate Finance Journal, Spring 1996, pp. 42-50.
Carpenter, Glenn L. and Gary B. Sabin, “Down REITs: Now Everyone Can Do Tax-Free Exchanges,” The REIT Report, Vol. XVI, No. 2, Spring 1996, pp. 9-11.
Friedman, Steven M., and Samuel H. Hoppe, “For REITs, Staples and Paper Clips Aren’t Just Office Supplies,” Commercial Investment Real Estate Journal, July-August 1998, pp. 8-9.
Downs, Gary P. and Julie E. Knipstein, “The House that Tax Credits Built,” The REIT Report, Vol. XVI, No. 3, Summer 1996, pp. 34-36.
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Ghosh, Chinmoy, Mike Miles, and C.F. Sirmans, “Are REITs Stocks?”, Real Estate Finance, Vol. 13, No. 3, Fall 1996, pp. 46-53.
Guenther, Daniel P. and T. Ritson Ferguson, “A Behind-the-Scenes Look at the Investment Performance of REITs,” The Journal of Real Estate Investment Trusts, Vol. 1, No. 3, November 1996, pp. 31-38.
Sanders, Anthony B., “The Historical Behavior of REIT Returns: A Capital Markets Perspective,” Chapter 12 in Garrigan and Parsons, pp. 277-305.
Lieblich, Frederich, Joseph A. Pagliari, Jr., and James R. Webb, “The Historical Behavior of REIT Returns: A Real Estate Perspective,” Chapter 13 in Garrigan and Parsons, pp. 306-338.
Mueller, Glenn R., and Steven P. Laposa, “REIT Returns: A Property Type Perspective,” Real Estate Finance, Spring 1996, pp. 45-55.
Taylor, Louis W., “Financial Analysis of REIT Securities,” Chapter 14 in Garrigan and Parsons, pp. 339-370.
Cymrot, Allen, “The Pricing of Equity REIT Stocks,” Real Estate Review, Vol. 26:4, Winter 1997, pp. 81-83.
Koch, Rebecca L., “Analyzing REIT Stocks: Valuation and Performance Issues,” Real Estate Review, Vol. 28:2, Summer 1998, pp. 12-12-23.
Martin, Vernon, “Office REIT Stocks are Overvalued!” Real Estate Review, Vol. 28:2, Summer 1998, pp. 5-11.
Liang, Youguo, and Willard McIntosh, “REIT Style and Performance,” Journal of Real Estate Portfolio Management, Vol. 4:1, 1998, pp. 69-78.
Vinocur, Barry, “How Much Debt Is Too Much for a Property Company? It Depends on How You Measure It?” Barrron’s Online, November 30, 1998.
Sagalyn, Lynne B., “Conflicts of Interest in the Structure of REITs,” Real Estate Finance, Vol. 13, No. 2, Summer 1996, pp. 34-51.
Burch, R. King, and R. Steven Taylor, “The Internal Conflicts of Hotel REITs: Part I,” Real Estate Review, Vol. 27:3, Fall 1997, pp. 10-18.
Schooler, Stuart D., “The REIT in Defeat,” The Real Estate Finance Journal, Fall 1996, pp. 25.
Tucker, Richard H., “Midwest Company’s Path Shows How Benefits Outweigh Perils of Becoming a REIT,” and Coley, W. Alex, “So You Want to be a REIT -- A Primer for Developer/Owners,” Development, Spring 1994, pp. 32-35.
Exam II (October 28)
ULI San Francisco November 4
Guest Lecture: REIT Executive (November 11)
No class night before Thanksgiving (November 25)
V. Institutional Real Estate Investment and Portfolio Considerations (November 18)
Readings:
Brueggeman and Fisher, Chapter 22, “Real Estate Investment Performance and Portfolio Considerations,” pp. 682-706.
Corgel, John B., “Three Real Estate Markets in Equilibrium,” Real Estate Finance, Vol. 15:1, Spring 1998, pp. 23-31.
Miles, Mike E. “A Foundation for the Strategic Real Estate Allocation: The Space Market Index,” Real Estate Finance, Vol. 14:3, Fall 1997, pp. 23-30.
Miles, Mike, and David Guilkey, “A Tactical Look at the Space Market Index,” Real Estate Finance, Vol. 14:4, Winter 1998, pp. 39-45.
McCadden, Daniel, and Peter McNally, “U.S. Pension Fund Investments in Real Estate: Current and Future Investment Strategy,” Real Estate Finance, Vol 13:4, Winter 1997, pp. 46-58.
Chadwick, W.J., “Equity REIT Securities: New Investment for Pension Funds?”, The Real Estate Finance Journal, Fall 1993, pp. 24-30.
Ling, David C., and Andy Naranjo, “The Fundamental Determinants of Commercial Real Estate Returns,” Real Estate Finance, Vol. 14:4, Winter 1998, pp. 13-24.
Geltner, David, “How Accurate is the NCREIF Index as a Benchmark, and Who Cares?” Real Estate Finance, Vol. 14:4, Winter 1998, pp. 25-37.
Sanders, Anthony B., Joseph L. Pagliari, Jr., and James R. Webb, “Portfolio Management Concepts and Their Application to Real Estate,” Chapter 2 in Pagliari, ed., The Handbook of Real Estate Portfolio Management, Irwin, 1995.
Wurtzebach, Charles H., “Real Estate Portfolio Management - Part I, Financial Theory Replaces Anecdote,” Chapter 6 in Hudson-Wilson and Wurtzebach, ed., Managing Real Estate Portfolios, Richard D. Irwin, Inc., 1994, pp. 165-184.
Gordon, Jacques N., “Investment Styles for Property Investors,” Capital Sources for Real Estate, Vol. 3, No. 6, June 1996, pp. 1-4.
DeBondt, Werner F.M., “Real Estate Cycles and Animal Spirits,” Chapter 28 in Pagliari, pp. 1153-1183.
BUY REPORT TEAM PRESENTATIONS – Dec 2 and Dec 9.