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Ms Lindsay Relihan STC S409

This course is available on the MSc in Real Estate Economics and Finance. This course is available with permission as an outside option to students on other programmes where regulations permit.

Entry into the MSc Real Estate Economics and Finance or by request from other qualified MSc students. Those qualified will already have knowledge of economics equivalent to a good first degree in the subject. 

The objective of this course is to educate students in the tools for evaluating real estate investment decisions and in incorporating the insights from urban economics to improve the profitability of their investments. The course will begin with a brief introduction to standard methods in evaluating risk and return in real estate investment and development. We will then discuss empirical techniques for identifying the impact of a shift in the demand or supply of space on the risk and return of an investment. From there, we will examine the theory and evidence for variation in risk and return within and across cities, as well as the institutional factors that create cross-country variation in investment outcomes. We will then discuss the construction of REITS, their ability to diversify across geography, and their performance. The remainder of the course will dive deeper into evaluating the impact of major emerging trends in urban economics on investment valuations that outperform spatially blind evaluations. Assessment for the course will center on valuation of a mixed-use retail property in London. A field trip to tour the property and surrounding urban enviornment may occur during the term.

20 hours of lectures, 5 hours of seminars, 4 hours of workshops and 1 hour of computer workshops in the LT.

At the end of the course students should be able to estimate the expected risk and return of an investment using the appropriate tools and methods. In that estimate, they should be able to evaluate which local economic factors are likely to impact the expected risk and return from an investment and account for them in their analysis. They should also be able to combine data with empirical techniques to measure the impact of those forces for which no good existing empirical estimates are available. Finally, they should be able to clearly articulate their assumptions and how those impact their results.

Students will be expected to produce 2 essays in the LT.

In their first essay, students will work in their groups to conduct the quantitative analysis for a case study using the stadard tools in real estate investment. Each student will prepare a 1000 word essay based on this quatitative work, analyzing the assumptions and methods used and the results. The second essay will also be 1000 words and center on assessing the students ability to incorporate urban economic theory and emprical research into their valuation.These formative exercises closely match the style and structure of the summative coursework. 

• Archer, Wayne R., and David C. Ling. "The three dimensions of real estate markets: Linking space, capital, and property markets." Real Estate Finance 14.3 (1997): 5-11.
• Brueggeman, W. B. and J. D. Fisher (2005) Real Estate Finance & Investments (13th edition or newer), New York City, NY: McGraw-Hill/Irwin
• Clayton, Jim, David C. Ling, and Andy Naranjo. "Commercial real estate valuation: fundamentals versus investor sentiment." The Journal of Real Estate Finance and Economics 38.1 (2009): 5-37.
• Hoesli, Martin, Elion Jani, and André Bender. "Monte Carlo simulations for real estate valuation." Journal of Property Investment & Finance 24.2 (2006): 102-122.
• Gunnelin, Åke, et al. "Determinants of cross-sectional variation in discount rates, growth rates and exit cap rates." Real Estate Economics 32.2 (2004): 217-237.
• Gyourko, Joseph, and Edward Nelling. "Systematic risk and diversification in the equity REIT market." Real Estate Economics 24.4 (1996): 493-515.
• Lieser, Karsten, and Alexander Peter Groh. "The determinants of international commercial real estate investment." The Journal of Real Estate Finance and Economics 48.4 (2014): 611-659.
• Plazzi, Alberto, Walter Torous, and Rossen Valkanov. "Expected returns and expected growth in rents of commercial real estate." The Review of Financial Studies 23.9 (2010): 3469-3519.
• Sivitanidou, Rena. "Urban spatial variations in office-commercial rents: the role of spatial amenities and commercial zoning." Journal of urban Economics 38.1 (1995): 23-49.
• Daníelsson, Jón. Financial risk forecasting: the theory and practice of forecasting market risk with implementation in R and Matlab. Vol. 588. John Wiley & Sons, 2011.

Essay (100%, 3500 words) in the ST Week 1.

The summative essay will be 3500 words and count for 100% of the student's final grade. It will center on assessing the students' ability to produce empirical estimates of the impact of shifts in demand and supply for commercial real estate using data and rigourous methods that they incorporate into their evaluation of an investment proposal's risk and return. The valuation should also contain other relevant estimates from the literature and justification for assumptions based on empirical evidence.