This course will focus on the art and science involved in making an investment in commercial and multifamily real estate through a bottom-up (asset level) and top-down (capital markets) approach that is regularly employed in the real world. Lectures will be delivered from the perspective of an equity investor with the intention of instructing each student on the proper approach to measuring risk associated with a real estate transaction. This approach will broadly cover the physical and the financial aspects of the investment, but will delve deeply into a variety of subtopics including leverage, and income tax considerations. Students will gain a broader understanding of the institutional real estate world and how circumstances in the current market impact the ability to acquire (and dispose) of product. The course will also employ a case study approach for applying the course concepts to practical real estate problems.
Learning Outcomes of Private Equity Real Estate
- Introduction to the basic concept of real estate and the manner that investors consider this type of investment in their portfolios.
- Exposure to the Four Quadrant Model of the real estate capital markets and the associated real estate products that constitute each quadrant.
- Immersion in basic unleveraged valuation methodology for real estate using the discounted cash flow tool.
- Introduction to the use of leverage and ultimately the calculation of personal income tax consequence as a result of owning a direct investment in real estate.
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MATTHEW CYPHER: Real estate is the largest asset class in the world. And that fact alone suggests that any student of finance needs to develop an understanding of real estate. And in this course, the hope is that we provide you with a broad-base introduction to the discipline of real-estate investing.
Within this course, we will help you answer a number of questions that relate to the field of real estate, such as what is real estate? What are the various kinds of real estate? Why should I invest in real estate? How is real estate classified from a physical and a locational-quality perspective?
We will then talk about the measurement of performance, how we calculate returns, and ascertain our property level returns. We will also discuss the real-estate lease, a building block of value, which will include discussion of the various clauses within the lease that drive asset value. We will then begin to answer the question, what is the real-estate asset worth? And how do we determine value?
We will talk about the discounted cash-flow approach to value and the associated components, such as the going-in cap rate, the discount rate, and the exit-cap rate, and how we use these return metrics to price a piece of real estate. We will then introduce the concepts of leverage and the individual investor concerns about personal income taxes associated with owning a piece of real estate. We will introduce the concept of leverage and consider concepts, such as positive and negative leverage. We will talk about ways in which the use of leverage on your investment increases the risk to you as the investor, but can potentially augment returns as well.
And finally, we will spend time understanding the tax consequences to you as the individual investor. By virtue of owning a piece of real estate, what are the income-tax implications? How does the income tax cause one investor's return to be different than the unleveraged or the leveraged returns? And at the end of this, we will spend a bit of time talking about the multi-family asset, and specifically, talking about how to underwrite the apartment so that you understand the nuances of that as an individual asset class.
In conclusion, I believe, by the virtue of going through this course, you will develop a broad understanding of this asset class that will help make you a better finance professional. And it is my hope that at the end of the day, that you will develop a passion and an interest in the asset class.