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HARVARD UNIVERSITY EXTENSION SCHOOL

MGMT E-2030: REAL ESTATE FINANCE AND INVESTMENT FUNDAMENTALS (13348)


Course iSite: http://isites.harvard.edu/k106068
Fall 2014
INSTRUCTOR
Edward H. Marchant
Adjunct Lecturer in Public Policy
John F. Kennedy School of Government
79 JFK Street
Cambridge, MA 02138

EHM/Real Estate Advisor


617-739-2543 (Tel)
617-739-9234 (Fax)
emarchant@msn.com

MEETING PLACE /CLASS TIME

COURSE ASSISTANT

Pound Hall, Room 204


Harvard Law School
1563 Massachusetts Avenue
Monday, 7:40-9:40 p.m.

Noah Fasten
11 Gibbs Street
Brookline, MA 02446
617-734-5156 (Tel)
noah.fasten@verizon.net

COURSE OBJECTIVES
The course is designed to provide a practical understanding of real estate finance and
development fundamentals by:

Introducing students to methodologies for estimating, calculating, and analyzing


basic real estate industry measures of return;

Having students understand the relative significance of these respective


measures of return;

Enabling students to recognize the varied financial and non-financial objectives


of the key private and public sector participants in the real estate development
process;

Familiarizing students with the key components of the real estate development
process and the sequencing, relative importance, and interrelationships among
these elements; and

Establishing an analytical framework to evaluate the risks and rewards of


existing and proposed real estate projects from both a quantitative and
qualitative perspective to determine a project's value.

COURSE DESCRIPTION
This course is designed for students interested in understanding the "nuts and bolts"
fundamentals of real estate development, finance, and investment. Students will learn
how to identify, understand, and calculate the three basic financial rewards generated
through successful real estate investments: cash flow, tax benefits, and future benefits.
Students will also be exposed to the financial risks associated with real estate
development and investment. Based upon this understanding of basic risk and reward
components, students will proceed to construct simple After Tax Cash Flow income
statements incorporating a project's revenue stream, operating expenses, replacement
reserves, debt service requirements, amortization and depreciation schedules, and
federal income tax requirements. As the course progresses, students will prepare
discounted cash flow analyses for the projected asset holding period utilizing Net
Present Value and Internal Rate of Return methodologies.
Each of these
methodologies incorporate all three of the primary financial benefits of real estate
investment and the timing of all cash outflows and inflows so that the time value of
money is factored into the respective return measures.
On the capital funds side, students will prepare "Sources and Uses of Funds
Statements" based upon realistic real estate industry debt and equity financing
alternatives. In particular, students will define the level of debt and equity financing that
can be supported by a project's net operating income.
The classroom experience will be synthesized through a final exercise in which student
teams will use an analytical framework developed during the course to design, structure
and evaluate a potential real estate development by applying the general concepts
learned in the course to a specific real estate opportunity within the Boston market area.
TARGETED AUDIENCE
The course is designed to be useful for students with any of the following interests: real
estate finance, investment or development (private, institutional or public sector); real
estate brokerage; real estate financial analysis/consulting; property or asset
management; affordable and mixed-income housing; urban revitalization; and economic
development.
FORMAT
The course will be a mix of lectures, case discussions, classroom exercises, and
student team presentations. MGMT E-2030 is a highly interactive course. Active
classroom participation by all students in every class is encouraged and
expected throughout the course. All students, including students for whom
English is a foreign language, must be willing and able to actively participate in
class discussions. 20% of the final grade will be based upon the quality of a
students class participation.

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PREREQUISITES
There are no course prerequisites. No prior real estate finance or development
experience is required.
Students who are interested in learning how real estate value is created and who
possess a healthy curiosity about the varied components of the real estate financing
and development process should be good candidates for this course. Basic algebra
skills should be sufficient for any required quantitative course work.
READING AND CASE ASSIGNMENTS
Reading and case assignments are detailed in the attached syllabus. Reading and
case materials include:
1. Kolbe, Philip T., Gaylon E. Greer and Bennie D. Waller Jr., Investment Analysis for
Real Estate Decisions, 8th Edition (DF Institute, Inc. dba Dearborn Real Estate
Education, 2013).
(ISBN-10: 1-4277-4205-7) (ISBN-13: 978-1-4277-4205-6)
KGW (can be ordered on the Web at www.amazon.com or other sites of your
choice). HOWEVER, BE SURE THAT YOU ORDER THE 8TH EDITION.
2. Selected Harvard Business School cases and industry notes Coursepack
(available for purchase from Harvard Business School Publishing:
https://cb.hbsp.harvard.edu/cbmp/access/27965052
You will need to register at this site to purchase the Coursepack.
3. Assignments and handouts that will be posted on the iSite or emailed to the
official class list or distributed in class. Handouts.
The course iSite is http://isites.harvard.edu/k106068
The text (KGW) will also available at Grossman Library.
The Harvard Square Coop has in its business section several general-purpose real
estate textbooks/reference books that students may also find useful. Students with an
interest in a particular real estate topic are encouraged to ask the instructor for
references. The University's most comprehensive collections of real estate resource
materials are at Baker Library at Harvard Business School and at Gund Library at the
Graduate School of Design.
The Internet can be an invaluable resource for historic and current real estate
information. ULI-the Urban Land Institute (ULI), a nonprofit educational and research
association, has one of the more useful sites: "www.uli.org". Students should review
this ULI site and its links early in the course. ULI publishes a wide variety of materials
useful to both private and public sector participants in the real estate development
process. ULIs publications catalogue is available at its Web site.

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Use of computer-based spreadsheets is commonplace in the real estate industry.


Students are encouraged to build their own simple software programs and use them, as
appropriate, in completing course assignments. It is very important, however, that
students understand the underlying concepts and methods to complete basic real
estate calculations (calculating net operating income, debt service constants and
payments, before tax cash flow, amortization and depreciation schedules, taxable
income, after tax cash flow, and net cash from sale) as well as basic measures of return
(return on total asset cost, cash-on-cash return, net present value, and internal rate of
return) before becoming dependent upon software to perform these calculations or
proceeding to utilize more sophisticated proprietary real estate software programs.
Students must have available at each class a financial calculator that can execute
basic real estate financial calculations. The Hewlett Packard HP-12C, HP-10BII, or
HP-17BII; the Texas Instrument BA-II Plus or BA-35; and the Sharp EL-733A or EL1071S financial calculators are all acceptable, but less elaborate, less expensive
models may also be available. The instructor is most familiar with the HP-12C
and will use his HP-12C for class demonstrations and explanations.
WRITTEN ASSIGNMENTS AND EXAMINATION
Course requirements include four written assignments and a final examination:
1. Written assignments are due at the beginning of class on the following dates:
October 20:
Feasibility Study Exercise, Part I
November 10: Angus Cartwright IV Financial Calculations
November 17: Angus Cartwright IV Investment Recommendations and Next
Steps Memo
December 8: Development/Investment Analysis Report and Team
Presentation
LATE ASSIGNMENTS WILL NOT BE ACCEPTED. ALL ASSIGNMENTS ARE DUE
AT THE BEGINNING OF THE DESIGNATED CLASS
Students should note that the calculations required for the Angus Cartwright IV
assignment due November 10 will require significant preparation time. Students may
find it helpful to begin working through the financial calculations in this case as the
respective required quantitative calculations are discussed in earlier classes.
Students are always encouraged to work together in reviewing and discussing
any written assignment. However, with the exception of the Angus Cartwright
financial calculations assignment due November 10 and the Development/
Investment Analysis Report due December 8, students must individually write and
submit all other written requirements.
2. There will be a final examination on December 15.

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Please refer to the current Extension School catalogue for final examination
requirements. Note that the Extension School has very strict final examination
policies and that the instructor has no authority to modify these policies.
CLASS ATTENDANCE

Students are expected to attend all classes.


There are only thirteen classes plus the final exam. Attendance will be taken at
each class promptly at 7:40 p.m. Late arrivals will be noted. Enrollment in MGMT
E-2030 is limited to thirty-eight students. The instructor assumes that enrolled
students will not have more than one known business or personal conflict with
the thirteen classes. If this is not the case, you should NOT enroll in the course.
Finding available legal parking spaces in Harvard Square or near Pound Hall is difficult
and students should therefore plan accordingly.
Students unable to attend a particular class are expected to notify the instructor in
advance. If appropriate, an alternative written assignment will be assigned for any
missed class. Students having to miss a class will be responsible for securing any
handouts distributed at that class
GRADING
Letter grades will be determined in accordance with Extension School policies and
grade distribution guidelines based upon the following weighted inputs:
Classroom Participation Quality
Final Team Project (including Peer Evaluations)
Other Written Assignments
Examination

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20%
30%
20%
30%

I. REAL ESTATE INVESTMENT OBJECTIVES


SEPTEMBER 8
COURSE INTRODUCTION/COURSE REQUIREMENTS
ESTABLISHING INVESTMENT OBJECTIVES
CREATING REAL ESTATE VALUE

IN ACCORDANCE WITH EXTENSION REQUIREMENTS FOR LIMITED


ENROLLMENT COURSES, ENROLLED AND WAITLISTED STUDENTS
MUST ATTEND THIS INITIAL CLASS TO MAINTAIN THEIR
ENROLLMENT STATUS.
Preparation
During this class the Somerville Commons case will form the basis for discussion. The
case will be emailed in advance to enrolled and waitlisted students and will also be
posted on the course iSite. Each student should prepare an estimate of the projects
value and a maximum offer price to the bank based upon the case information and the
Questions for Discussion listed at the end of the case.
All students must provide a current email address during registration in order to
receive this assignment via email. The case will also be available on the course
iSite: http://isites.harvard.edu/k106068.
To prepare for this class, students should purchase and carefully review Financial
Analysis of Real Property Investments (HBS technical note written by William J.
Poorvu). This 25-page note provides an excellent overview of much of the material that
will be presented and discussed during this course. The note is included in the
Coursepack.
I do not expect you to understand all of the information that is presented in this note
upon your initial reading. However, I do expect you to familiarize yourself with the notes
content and complete a careful initial reading. This note will also be assigned for
several future classes and its content should become more understandable as you
progress through the course.

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II. REAL ESTATE INVESTMENT REWARDS AND RISKS

SEPTEMBER 15
UNDERSTANDING HOW REAL ESTATE VALUE IS CREATED: NET OPERATING
INCOME (NOI), ADJUSTED NOI, WEIGHTED AVERAGE COST OF CAPITAL
(WACC), AND RETURN ON TOTAL ASSET COST (ROTAC)
Preparation
Somerville Commons Weighted Average Cost of Capital (WACC) assignment. Emailed
to class list and posted on course iSite.
In addition, review more carefully the Somerville Commons case and the explanation of
the Somerville Commons calculations distributed at the prior class. Based upon your
post-offer reflections, would your maximum offer amount for Somerville Commons
change?
Reading
A.

KGW, pp. 3-22 (Real estate investment decision), pp. 93-107 (Reconstructing
the operating history) and pp.111-124 (Forecasting income and property
value)

B.

KGW, pp. 493-518 (Glossary: use as needed throughout the course). This text
also provides useful Internet references at the end of each chapter.

C.

Continue to review Financial Analysis of Real Property Investments (HBS


technical note written by William J. Poorvu), pp.1-9. (Case Package)

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SEPTEMBER 22
DEBT FINANCING AND MORTGAGE FUNDAMENTALS, MORTGAGE
UNDERWRITING BASICS, FINANCIAL LEVERAGE, PERMANENT FINANCING,
CONSTRUCTION FINANCING, BEFORE TAX CASH FLOW (BTCF)
Preparation
A.

Marchant, "Debt Financing Underwriting Exercise" (Exercise prepared for use


in this course.) Emailed to class list and posted on course iSite.

B.

Marchant, "Debt Service Exercise" (Exercise prepared for use in this course.)
Emailed to class list and posted on course iSite.

C.

Marchant, "Debt Service Schedule Spreadsheet (Spreadsheet prepared for


use in this course.) Emailed to class list and posted on course iSite. Review
the formulas that were used to create this spreadsheet.

D.

Marchant, "Using Your Financial Calculator to Calculate an Annual Constant"


(Exercise prepared for use in this course.) Emailed to class list and posted on
course iSite.

Reading
A.

KGW, pp. 131-144 (Financial leverage and investment analysis), pp. 149-160
(Credit instruments and borrowing arrangements), pp. 163-180 (Cost of
borrowed money), pp. 450-462 (Mathematics of compounding and
discounting) and pp. 472-478 (Compounding and discounting with financial
calculators)

B.

Continue to review: Financial Analysis of Real Property Investments (HBS


technical note written by William J. Poorvu), pp.10-17. (Case Package)

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SEPTEMBER 29
UNDERSTANDING THE BASIC FEDERAL INCOME TAX EFFECTS THAT CREATE
TAX BENEFITS, CALCULATING TAXABLE INCOME AND AFTER TAX CASH FLOW
(ATCF)
Note: You are not expected to become real estate tax experts. You are expected to
understand and be able to calculate depreciation schedules, amortization schedules,
taxable income, income taxes due or tax shelter benefits created, and ATCF.
Therefore, your reading should focus on the respective tax advantages of alternative
ownership entity vehicles, general tax policy, depreciation guidelines and methods,
respective tax rates, and capital gains tax treatment. Understanding how individuals,
limited partnerships, limited liability companies, corporations, real estate investment
trusts (REITs) and community development corporations structure investments to
maximize tax benefits by minimizing tax liabilities is particularly important.
Preparation
A.

Marchant, "After Tax Cash Flow (ATCF) Exercise" (Exercise prepared for use
in this course.) Emailed to class list and posted on course iSite.

B.

Marchant, "Depreciation Exercise" (Exercise prepared for use in this course.)


Emailed to class list and posted on course iSite.

Reading
A.

KGW, pp. 187-207 (Fundamental income tax issues), pp. 212-227


(Computation of tax treatment of realized gain or loss), pp. 437-446 (Real
estate investment trusts) and pp. 481-492 (Like-kind exchanges)

Note: For more detailed and timely income tax-related information, students may want
to review the following IRS publications that are available at www.IRS.gov

Publication 527 (2013), Residential Rental Property

Publication 544 (2013), Sales and Other Dispositions of Assets

Publication 946 (2013), How To Depreciate Property

Information on tax rates for individuals and corporations is also available at


the IRS site.

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OCTOBER 6
FUTURE BENEFITS OF REAL PROPERTY
FORMATION OF STUDENT TEAMS FOR SOLDIERS FIELD EXERCISE

Preparation
A.

Marchant, "Net Cash from Sale Exercise" (Exercise prepared for use in
this course.). Emailed to class list and posted on course iSite. In addition, be
prepared to discuss what your Net Cash from Sale financial objectives would
be as an investor and how important this component of return would be to you
compared to Before Tax Cash Flow and Tax Benefit returns. Provide specific
metrics for your Net Cash from Sale financial objectives.

Reading
A.

KGW, pp. 211-226 (Repeat) (Tax consequences of property disposal),


pp. 481-492 (Repeat) (Like-kind exchanges)

B.

Continue to review Financial Analysis of Real Property Investments (HBS


technical note written by William J. Poorvu), pp.18-21. (Case Package)

Note: Student teams for the Soldiers Field Site Exercise will be finalized at this
class for those students who have not already formed a team. There will be a total
of six teams. Initially, no team may have more than six members or more than
three international students. Students are encouraged to form their own teams
prior to October 6.

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OCTOBER 13
(NO CLASS/COLUMBUS DAY HOLIDAY)
Assignment in Lieu of Class Meeting
If you have not already done so, visit the Soldiers Field site prior to our next class in
preparation for the team assignment due December 9. Prepare an outline response to
Question 1 in "The Soldiers Field Site Development/Investment Analysis".
Reading
A.

Marchant, "The Soldiers Field Site Development/Investment Analysis".


(Exercise prepared for use in this course. (Revised Fall 2014). Emailed to
class list and posted on course iSite.

B.

KGW, pp. 27-46 (Investment strategy and market efficiency), pp. 49-60 (Land
utilization and the rental value of real estate), pp. 67-90 (Market research tools
and techniques), pp. 375-386 (Subdivision proposal analysis), pp.389-404
(Development and rehabilitation), and pp. 407-431 (Industrial property, office
building, and shopping center analysis)

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III. REAL ESTATE INVESTMENT ANALYSIS


OCTOBER 20
FEASIBILITY STUDY EXERCISE, PART I / PROPOSED MULTI-FAMILY HOUSING
DEVELOPMENT IN RALEIGH, NC (DEVELOPMENT PROCESS, SOURCES AND
USES OF FUNDS STATEMENT, AFTER TAX CASH FLOW PROJECTIONS,
STANDARD REAL ESTATE INDUSTRY MEASURES OF RETURN)
Written Assignment Due
NO LATE ASSIGNMENTS WILL BE ACCEPTED
ASSIGNMENT MUST BE SUBMITTED AT THE BEGINNING OF CLASS
Submit at the beginning of this class answers to the questions listed at the end of the
"Feasibility Study Exercise". Be sure to complete Exhibit A. Please "highlight" your
answers and retain a copy of your submission for use during class. This exercise
presents an excellent opportunity to practice your spreadsheet skills.
Reading
A.

Marchant, "Feasibility Study Exercise." (Exercise prepared for use in this


course.) Emailed to class list and posted on course iSite.

B.

KGW, pp. 357-372 (Investment feasibility analysis), pp. 287-300 (Risk in real
estate investment), pp. 303-316 (Traditional risk-adjustment methods), pp.
319-343 (Contemporary risk measures) and pp. 345-353 (Risk management
in a portfolio context)

OCTOBER 27
FEASIBILITY STUDY EXERCISE, PART II / PROPOSED MULTI-FAMILY HOUSING
DEVELOPMENT IN RALEIGH, NORTH CAROLINA (NET CASH FROM SALE,
DISCOUNTED CASH FLOW ANALYSIS, INTERNAL RATE OF RETURN,
COMPUTER-ASSISTED REAL ESTATE ANALYSIS, SENSITIVITY ANALYSES)
Preparation
A.

The assignment for this class will be posted on the course iSite after the
preceding Feasibility Study Exercise, Part I class. Be sure to carefully review
the notes explaining how Net Present Value (NPV) and Internal Rate of Return
(IRR) measures of return are calculated before you complete the assignment
for this class. These notes are included at the end of the assignment.

Reading
A.

KGW, pp. 247-262 (Discounted cash flow analysis)

B.

Continue to review Financial Analysis of Real Property Investments (HBS


technical note written by William J. Poorvu), pp.23-24. (Case Package)
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NOVEMBER 3
INVESTMENT ANALYSIS (REVERE STREET)
Reading
A.

Harvard Business School case, "Revere Street" (Case Package)

B.

KGW, pp. 389-405 (Repeat) (Development and rehabilitation)

Preparation
Be prepared to discuss the following twelve questions:
1.

What are Edward Alexanders financial and non-financial objectives?

2.

What is the total asset cost? (Uses of Funds)

3.

What debt and equity funds are available to purchase and rehabilitate the
property? (Sources of Funds)

4.

Prepare a simple Sources and Uses of Funds Statement.

5.

What is the Return on Total Asset Cost (ROTAC)?


(ROTAC equals Net Operating Income divided by Total Asset Cost)

6.

What Before Tax Cash Flow (BTCF) could the Revere Street property
generate? What would the Alexanders Cash-on-Cash Return be?
(Cash-on-Cash Return equals BTCF divided by Equity)

7.

What After Tax Cash Flow (ATCF) could be generated by Revere Street for
the Alexanders? Use the assumptions listed below.

8.

If the Alexanders expect to sell the property after owning it for five years after
the rehab work is completed, how should they estimate its future value?
Using the assumptions that follow, what do you think the sales price might be
after five years of operation? After deducting the costs of sale, any capital
gains tax due, and the outstanding mortgage balance, what would the
Alexanders Net Cash from Sale be?

9.

What is the Net Present Value (NPV) of this investment assuming a sale at
the end of year five and a discount rate of 12%? Explain your assumptions
and show your ATCF calculations for years 1-5 as well as your Net Cash from
Sale calculations assuming a sale at the end of year five. Do the NPV
calculation "by hand" and then check your answer by using your calculator
and/or computer software. Remember to use Year 6 NOI to project your
estimated Sales Price.
ASSIGNMENT CONTINUED ON NEXT PAGE

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10.

What is the Internal Rate of Return (IRR) for the Alexanders on this
investment, assuming a sale of the property at the end of year five? Do the
IRR calculation "by hand" and then check your answer by using your
calculator and/or computer software.

11.

What risks/rewards might there be in this investment? Should the Alexanders


purchase this property? Will they achieve their defined objectives? Will the
Alexanders live "rent free"?

12.

Is there any additional information you would want to have before making an
investment decision on this property?

Use the following assumptions to answer the questions listed above:


A. Assume a land value of $20,000 per unit
B. Use a 27.5 year straight line depreciation method (residential property)
C. Assume a 39.6% tax rate for ordinary income and a capital gains tax rate of 25% on
that portion of capital gain attributable to accumulated depreciation and a capital gains
tax rate of 20% on the balance of the capital gain
D. Assume that Net Operating Income (NOI) will increase by 2% annually
E. Assume an Exit Cap Rate of 8%
F. Assume that the Costs of Sale are 3% of the Gross Sales Price
G. Assume for academic purposes only that the Alexanders have passive income from
other real estate investments and could utilize any tax shelter that may be generated by
this investment, if in fact this investment generates negative taxable income.

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NOVEMBER 10
MEASURES OF REAL ESTATE VALUE AND RETURN
(ANGUS CARTWRIGHT IV / CLASS I)
Reading
A.

Harvard Business School case, "Angus Cartwright IV" (Case Package)

B.

KGW, pp. 247-262 (Repeat) (Discounted cash flow analysis) and


pp. 265-279 (Investment goals and decision criteria)

Written Assignment Due


LATE ASSIGNMENTS WILL NOT BE ACCEPTED
ASSIGNMENT MUST BE SUBMITTED AT THE BEGINNING OF CLASS
Complete and submit Exhibits 1-10 for "Angus Cartwright IV". Note: This is a long
assignment. Be sure to budget adequate time for its preparation. You are
encouraged to work together with up to two classmates on this assignment. If you do
work with classmates, submit only one complete assignment for the group. Be sure to
make a copy of your completed work for use in preparing next week's assignment. To
simplify grading, please use a color "highlighter" to clearly identify your answers if they
are presented in a spreadsheet format.
Note: Although this quantitative assignment may be submitted as a group assignment,
the written memos to be submitted next week must be individually prepared and
submitted.

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NOVEMBER 17
INVESTMENT RECOMMENDATIONS AND NEXT STEPS
(ANGUS CARTWRIGHT IV / CLASS II)
Reading
A.

Harvard Business School case, "Angus Cartwright IV" (Case Package)

B.

KGW, pp. 303-316 (Repeat) (Traditional risk-adjustment methods), pp. 319343 (Repeat) (Contemporary risk measures), and pp. 345-353 (Repeat) (Risk
management in a portfolio context)

Written Assignment Due


LATE ASSIGNMENTS WILL NOT BE ACCEPTED
ASSIGNMENT MUST BE SUBMITTED AT THE BEGINNING OF CLASS
Assuming that you are the investment advisor Angus Cartwright IV, prepare a clear,
concise and convincing memorandum to either Judy DeRight or John DeRight
explaining which property (or properties) you feel would be the best investment
opportunity for either of these investors. Be sure to substantiate your recommendations
based upon each individual's personal investment criteria and the financial
characteristics of each of your recommended properties. Although you are being
asked to submit written investment recommendations for only one of these
investors, remember that you represent both of them and that each one is a very
important client. During class discussion you will also be asked to explain your
investment recommendations for each client. Your investment recommendation
must be submitted at the beginning of class and must not exceed two double-spaced
typed pages, exclusive of relevant exhibits. Be sure that your recommendation is
written in a realistic, persuasive memorandum format.
In addition to your investment recommendation memo, prepare a one page
practical memo that outlines and explains the Next Steps that should to be
taken to further investigate the recommended project(s) and consummate the
acquisition(s).
Retain a copy of your memos for use during the class discussion of this case. Be sure
to proofread your memos carefully.
From both a learning and grading perspective, your investment recommendations are
the most important component of the Angus Cartwright exercise. Sound and carefully
argued investment recommendations will demonstrate that you not only understand the
financial calculations but also can interpret the results and distinguish which measures
of return are most meaningful.
Note: Unlike the assignment due for the prior class, the "Investment
Recommendation and Next Steps" Angus Cartwright, III exercise is not a team
assignment. Each student must individually prepare this assignment. However,
discussion among classmates prior to the actual writing of your memoranda is permitted
and encouraged.
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NOVEMBER 24
PERMITTING, DESIGN AND DEVELOPMENT EXERCISE: SUBURBAN OFFICE
BUILDING
Reading and Preparation
A.

Marchant, "Suburban Office Building Development Exercise," (Exercise prepared


for use in this course.). Focus on Sections III and V. Emailed to class list and
posted on course iSite.

B.

KGW, pp. 407-434 (Repeat) (Industrial property, office building, and shopping
center analysis)

In addition, conduct a web search to find and review the Zoning Bylaws for office
building uses for any suburban Greater Boston community of your choice (or for your
hometown).
Be prepared to discuss the zoning requirements for the municipality that you
researched.

DECEMBER 1
COURSE REVIEW
Preparation
As assigned at conclusion of November 24th class. Written preparation of this
assignment and review/discussion with classmates is strongly encouraged.

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DECEMBER 8
DEVELOPMENT/INVESTMENT ANALYSIS: THE SOLDIERS FIELD SITE
Written Assignment Due
LATE ASSIGNMENTS WILL NOT BE ACCEPTED
ASSIGNMENT MUST BE SUBMITTED AT THE BEGINNING OF CLASS
Come to class prepared to present your team analysis and recommendations. Each
teams written report must include an Executive Summary and a concise discussion of
each of the six questions listed in the assignment. The report, exclusive of the
Executive Summary, must not exceed twelve, double-spaced pages. Relevant exhibits
(E.g., site plans, typical floor plans, building elevations, photographs, and/or market
data) are not included within this page limit.) Each team must also include a summary
of the primary work responsibilities of each team member. Each student must submit a
performance assessment for each team member using the Assessment Form that will
be distributed with this exercise.

PRESENTATION SCHEDULE
TEAM 1

7:45 p.m. 8:00 p.m.

TEAM 2

8:00 p.m. - 8:15 p.m.

TEAM 3

8:15 p.m. - 8:30 p.m.

TEAM 4

8:30 p.m. - 8:45 p.m.

TEAM 5

8:45 p.m. 9:00 p.m.

TEAM 6

9:00 p.m. - 9:15 p.m.

GENERAL CLASS DISCUSSION AND


ASSIGNMENT FOR NEXT CLASS

Balance of Class

Reading
A.

Marchant, "The Soldiers Field Site: Development Opportunities" (Revised Fall


2014). Exercise prepared for use in this course.

B.

KGW, pp. 49-60 (Land utilization and the rental value of real estate),
pp. 67-86 (Market research tools and techniques), pp. 375-386 (Subdivision
process analysis), pp. 389-406 (Development and rehabilitation process) and
pp. 409-431 (Industrial property, office building, and shopping center analysis).
These are all Repeat readings.

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DECEMBER 15
FINAL EXAM
Although the final exam will be designed to be completed by well-prepared students
within the normal class time, students desiring additional time may have until 10:15
p.m. to complete the exam, subject to the classroom being available after 9:40
p.m.
Please refer to the current Extension School catalogue for final examination
requirements. Note that the Extension School has very strict final examination
policies and that the instructor has no authority to modify these policies.

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MGMT E- 2030: REAL ESTATE FINANCE AND INVESTMENT FUNDAMENTALS


FALL 2014
CLASS

DATE
9/1

TOPIC
No Class (Labor Day Holiday)
Introduction/Course Requirements

9/8

9/15

Net Operating Income (NOI), Adjusted NOI, Weighted Average Cost of


Capital (WACC), and Return on Total Asset Cost (ROTAC)

9/22

Debt Financing Fundamentals/Debt Service Coverage Factor/Annual


Constant/Mortgage Underwriting Basics/Appraisal Process/Financial
Leverage/Permanent Financing/ Construction Financing / Before Tax
Cash Flow (BTCF)

9/29

10/6

10/13
6

10/20

10/27

Investment Objectives/Understanding and Creating Real Estate Value/


Somerville Commons Offer

Income Tax Effects/Depreciation/Taxable Income/Tax Benefits (Tax


Shelter and Tax Credits)/After Tax Cash Flow (ATCF)
Future Benefits (Net Cash from Sale)
Determinants of Future Value
Finalization of Student Teams for Soldiers Field Exercise
No Class (Columbus Day Holiday)
Soldiers Field Site Visits
Feasibility Study Exercise, Part I
Feasibility Study Exercise, Part II
Discounted Cash Flow Measures of Real Estate Return: Net Present
Value (NPV) and Internal Rate of Return (IRR)
Sensitivity Analyses
Revere Street (Case Study)

11/3

11/10

10

11/17

11

11/24

Permitting, Design and Development Exercise: Suburban Office Building

12

12/1

Course Review for Final Exam

13

12/8

Development/Investment Analysis: Soldiers Field Site Exercise


Student Team Presentations. All Written Reports Due.

14

12/15

Final Exam

Angus Cartwright IV (Class I) (Case Study)


Financial Calculations
Angus Cartwright IV (Class II) (Case Study)
Investment Recommendations and Next Steps Memos

Classes in bold indicate classes with Written Assignments due at class.


Late assignments will not be accepted. Date for Final Exam is also in bold.
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