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Michael Olafusi

MIT: Real Estate Finance and Investment

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You can register on MIT Opencourseware for Real Estate Finance and Investment at https://ocw.mit.edu/courses/urban-studies-and-planning/11-431j-real-estate-finance-and-investment-fall-2006/ 

About the course

This course is an introduction to the most fundamental concepts, principles, analytical methods and tools useful for making investment and finance decisions regarding commercial real estate assets. As the first of a two-course sequence, this course will focus on the basic building blocks and the "micro" level, which pertains to individual properties and deals (as distinguished from the "macro" level that pertains to portfolio, firm level, and investment management considerations - the macro level will be covered in 11.432 next spring).

This course will consider investment in both "stabilized" (fully operational) income properties, and development investments. Our perspective will be that of so-called "institutional" real estate decision-making (e.g., pension funds, REITs, banks, life insurance companies), regarding large-scale commercial property. At this level it is important to integrate the perspectives of "Wall Street" (the mainstream securities investments and corporate finance establishment) and "Main Street" (local, traditional real estate business community). This requires a treatment of real estate investment rigorously integrated with, and built upon, the modern corporate finance and investments perspective as taught, for example, in the Brealey-Myers text in the Sloan introductory finance theory curriculum (15.401). However, a key objective of this course is to recognize the unique features of real estate that distinguish it from so-called "mainstream" securities investments and corporate finance.


1 Course introduction (Geltner) (PDF)
2 DCF (McGrath) (PDF)
3 DCF (cont.) and NPV (McGrath)
4 NPV (Geltner)
5 Real estate cash flows, proformas (McGrath) (PDF)
6 Real estate opportunity cost of capital (McGrath)
7 Leverage (McGrath) (PDF)
8 Case 1: Private practice case I due (McGrath)
9 WACC formula (McGrath)
10 After-tax cash flows (McGrath)
11 After-tax investment analysis and capital budgeting (Geltner) (PDF)
12 Commercial mortgage underwriting (Geltner) (PDF)
13 Case 2: Private practice case II due (McGrath) (PDF)
14 Exam 1 (Chapters 10-13, 14.1-5)
15 Development financial feasibility (Geltner) (PDF)
16 Development project evaluation (Geltner) (PDF)
17 Intro case 3, madison project example (Geltner)

Madison example (cont.)

Finish development project investment analysis (Geltner)

19 Case 3: One Lincoln St case I (development) due (McGrath)
20 Lincoln (post) and Inter-Mountain (pre) case discussions (Geltner)
21 Capital structure debt vs equity, etc. (Geltner) (PDF)
22 Project level capital structure (Geltner)
23 Real options and land value (Geltner) (PDF)
24 Real options and land value (cont.) (Geltner)
25 Case 4: "Inter-Mountain" development project case (Larry Ellman, Citigroup) guest participant
26 Case 4 debriefing; review and catch up (Geltner)
27 Real options (cont.) review, catch up (Geltner)
  Final exam (Cumulative with emphasis on 17.1, 18.2, 15.3, 27, 28, 29.1 and 29.3, and lessons from Cases 3 and 4)

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