Real Estate Investments II
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: A Simplified Look at Real Estate Taxation & Structuring
- Reviews property, transfer, and income taxes as they relate to real estate.
- Explains taxable gain on sale and the “double whammy” effect of foreclosure.
- Introduces UPREITs/DownREITs as tax-deferred recapitalization strategies.
- Outlines the typical acquisition/disposition path; includes appendices.
Download Week 1 Notes here
Week 2: Structuring & Optimal Contracting Issues
- Examines GGP’s bankruptcy and implications for CMBS structures and special servicers.
- Discusses portfolio- and property-level structuring issues.
- Explores incentive fee structures (waterfalls, catch-ups, clawbacks) and their asymmetries.
- Introduces optimal contracting concepts with a detailed incentive-fee illustration.
Download Week 2 Notes here
Week 3: Core → Non-Core Pricing & Joint Venture Arrangements Revisited
- Revisits joint-venture pricing, promote structures, and catch-up provisions.
- Explores leverage and the law of one price (sources of “alpha”).
- Analyzes asymmetric incentive fees, optionality, and behavioral/agency effects.
- Includes appendices on operating companies and non-core funds in the market.
Download Week 3 Notes here
Week 4: Value-Add & Opportunity Funds and Mezzanine Financing
- Assesses performance of value-add and opportunity funds; fee-driven asymmetries.
- Revisits the law of one price and sensitivity of fund outcomes.
- Introduces mezzanine (high-yield) financing: sponsor vs. traditional mezz, risk/return, tranching.
- Highlights liquidity concerns and improving returns via asset quality and upside participation.
Download Week 4 Notes here
Week 5: Midterm Week
- Midterm exam week; no new lecture content.
Week 6: Real Estate Derivatives & Implied Forward Rates
- Distinguishes between futures (exchange-traded) and swaps (OTC).
- Examines applications of CRE swaps for hedging, capital allocation, and speculation.
- Explains basis risk and other implementation complications.
- Discusses implied forward interest and inflation rates; implications for liabilities management and pricing.
Download Week 6 Notes here
Week 7: Strategic Uses of Leverage
- Explores probability of positive leverage (ka > kd) and put-option features of non-recourse borrowing.
- Considers fixed- vs. floating-rate debt, cross-collateralization, and leverage ratio choices.
- Analyzes risk-shifting/debt-overhang issues and historical performance of levered strategies.
- Revisits mezzanine debt and volatility of levered equity returns under different loan types.
Download Week 7 Notes here
Week 8 (Part I): Real Estate & Hedonic Pricing
- Introduces hedonic pricing and property attributes as price determinants.
- Applications: rent setting, acquisition strategy, and evaluating property management.
- Notes caveats of hedonic models and reviews repeat-sales indices.
- Includes advanced tools such as GIS and cellular data.
Download Week 8 (Hedonics) Notes here
Week 8 (Part II): Specialty/Non-Core Real Estate
- Evaluates risks/returns of “green” investing and underwriting cycles (“vintage” risk).
- Discusses distressed debt strategies and land as an option for development.
- Examines evolving views of core vs. non-core real estate.
- Covers sale/leasebacks, synthetic leases/SPEs, LIHTC deals, hotels, and senior housing.
Download Week 8 (Non-Core) Notes here
Week 9: Real Estate Investment Trusts (REITs) – Another Look
- Analyzes key differences between public and private markets for real estate.
- Examines NAV-based and other arbitrage strategies; growth metrics (e.g., same-store, RevPAR).
- Discusses stock buyback programs and joint ventures as tools to expand footprints and create optionality.
- Compares NCREIF and NAREIT indices, controlling for leverage and property type.
Download Week 9 Notes here