Real Estate Investments I
Below are the weekly lecture notes. Each section provides a short overview of the topics covered so you can preview the material before downloading.
Week 1: The Real Estate Investment Setting & Framework
- Introduces real estate in three dimensions: property types, geographies, and life cycles.
- Explains the role of leases in determining value.
- Covers supply and demand dynamics in commercial real estate.
- Includes a case study on apartment investing, along with an overview of real estate law.
Download Week 1 Notes here
Week 2: Investment Decision Making – Part I
- Applies mainstream finance concepts (NPV, IRR, MIRR, Look-back IRR) to commercial real estate.
- Explains the structure and use of the pro forma.
- Discusses misconceptions in pricing and the impact of fees on returns.
- Reviews corporate finance models (e.g., Dividend Discount Model) as applied to real estate and provides notes on partnership offerings.
Download Week 2 Notes here
Week 3: Investment Decision Making – Part II
- Breaks down IRR attribution and its components.
- Analyzes capitalization-rate shifts and historical performance by property type.
- Provides empirical evidence using the NCREIF Index.
- Discusses forecasting future returns, with real-world examples from broker and investment committee analyses.
Download Week 3 Notes here
Week 4: Investment Decision Making – Part III
- Explores financial modeling of long-term leases, including debt–equity and income-differential models.
- Applies duration concepts to real estate.
- Reviews financing mechanisms such as sale/leaseback, ground leases, master leases, and infrastructure financing.
- Examines adjustments to rental rates based on tenant quality and transaction examples (e.g., Empire State Building).
Download Week 4 Notes here
Week 5: Midterm Week
- Midterm exam week; no new lecture content.
Weeks 6 & 7: Mortgage Debt and Use of Financial Leverage
- Explains mortgage mechanics and underwriting standards.
- Analyzes the impact of debt on equity returns and volatility.
- Discusses loan structures, benchmarks, and pricing considerations.
- Introduces CMBS, bridge equity loans, levered loans, and securitization.
- Examines the strategic use of leverage and bankruptcy risk.
Download Weeks 6 & 7 Notes here
Week 8: An Introduction to Real Estate Investment Trusts (REITs)
- Provides an overview of the REIT market and structure.
- Covers tax treatment, NAVs, and FFO/AFFO.
- Analyzes accretive vs. dilutive investments and public vs. private real estate.
- Highlights REIT performance, economies of scale, and security design.
- Includes a comparison of equity REITs to the S&P 500 and institutional research perspectives.
Download Week 8 Notes here
Week 9: Risk/Return Analysis – A Probabilistic Approach
- Defines measures of risk (volatility, correlation, systematic vs. total risk).
- Explores diversification, mean reversion, and risk-forecasting methods.
- Demonstrates sensitivity analysis, scenario forecasting, and Monte Carlo simulation.
- Discusses pricing convexity, capitalization-rate volatility, and the “variance drain.”
- Provides examples of pricing in high- vs. low-barrier markets.
Download Week 9 Notes here