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HARVARD UNIVERSITY

JOHN F. KENNEDY SCHOOL OF GOVERNMENT COURSE INFORMATION

HUT-265: REAL ESTATE FINANCE AND DEVELOPMENT FUNDAMENTALS FALL 2005 INSTRUCTOR Edward H. Marchant, Adjunct Lecturer in Public Policy Belfer, Room G-3 Telephone: 617-739-2543; Fax: 617-739-9234 E-mail: emarchant@msn.com Office Hours: By Appointment Faculty Assistant Veronica McClure Littauer, Room 105 Telephone: 617-495-4725; Fax: 617-495-2179 E-mail: veronica_mcclure@harvard.edu Course Assistants TBA Telephone: E-mail: Office Hours: MEETING PLACE AND CLASS TIME KSG, Littauer Room 150 Monday and Wednesday 4:40 - 6:00 p.m. COURSE OBJECTIVES The course is designed to provide a practical understanding of real estate finance and development fundamentals by:

Introducing students to methods for collecting, estimating, calculating, and analyzing the critical quantitative real estate "measures of performance";

Having students understand the relative importance of these "measures of performance" and

the underlying reasons for their importance;

Enabling students to recognize the varied financial and non-financial objectives of the key private and public sector actors in the real estate development process;

Familiarizing students with the most significant elements of the real estate development

process and the timing of and interrelationships among these elements; and

Establishing a framework by which real estate projects can be evaluated from both a quantitative and qualitative perspective to determine a project's value.

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DESCRIPTION This course is designed for students interested in understanding the fundamentals of real estate finance and development. Although HUT-265 is not a "policy" course, its practical real estate and business content has been designed to help inform future housing, urban development, and economic development policy decision makers. A variety of real estate asset types (e.g., conventional and affordable housing, office, retail, hotel, convention center, and land) will be used as vehicles to illustrate basic real estate finance and development concepts and practices. Students will learn how to identify, understand, and calculate the three basic financial rewards generated by successful real estate projects: cash flow, tax benefits, and future benefits. Students will also be exposed to the financial risks associated with real estate development and investment. Based upon this understanding of basic reward and risk components, students will proceed to construct simple "After-Tax Cash Flow" income statements incorporating a project's revenue stream, operating expenses, replacement reserves, debt service requirements, amortization and depreciation schedules, and federal tax requirements. As the course progresses, students will prepare discounted cash flow analyses for the projected holding periods utilizing Net Present Value and Internal Rate of Return methodologies. On the capital side, students will prepare "Sources and Uses of Funds" statements for real estate development or investment projects using standard debt and equity financing alternatives to define the levels of debt and equity financing that can be supported by a project's net operating income. The classroom experience will be synthesized through a final exercise in which student teams, using an analytical framework developed during the course, will structure and evaluate a potential real estate development by applying the general concepts learned in the course to a specific real estate opportunity within the Boston market area. AUDIENCE The course is designed to be useful for students with any of the following interests: real estate development, design, finance, construction, and management (within the private, public, or institutional sector); affordable housing; mixed-income housing; community development; economic development; local, state, or federal housing program/policy design, evaluation, or implementation; real estate financial analysis/consulting; and/or real estate law. The course content has been designed to be particularly useful for both understanding and negotiating public-private real estate ventures. FORMAT The course will be a mix of case discussions, classroom exercises, lectures, guest lectures, field visits, a quiz, and student presentations. HUT-265 is a highly interactive course. Active classroom participation by students is encouraged and expected throughout the course. Attendance at all classes is assumed.

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PREREQUISITES There are no course prerequisites. However, students should have a willingness to work with numbers and an interest in learning how real estate value is created. Basic algebra skills will be sufficient for any quantitative work required in the course. Students are encouraged to design and use simple spreadsheets once the underlying concepts and calculation methodologies are understood. READING AND CASE ASSIGNMENTS Reading and case assignments are detailed in the attached syllabus. Reading and case materials include: 1. Poorvu, William J. The Real Estate Challenge, Capitalizing on Change. Cincinnati, Ohio:

South-Western/Thomson Learning, 2001. (Poorvu) (ISBN: 0-324-13790-7)

2. Miles, Mike E., Gayle Berens, and Marc A. Weiss. Real Estate Development, Principles and

Process, Third Edition. Washington, D.C.: ULI-the Urban Land Institute, 2000. (Miles) (ISBN: 0-87420-825-4)

3. Handouts to be distributed in class throughout the course as part of Course Packet (to be charged to student accounts and/or made available on the course web page)

and materials available on the web. Both texts are available for purchase at the Harvard Square Coop. The University's most comprehensive collections of real estate reference materials are at Baker Library at Harvard Business School and at Gund Library at the Graduate School of Design. The Web can be an invaluable resource for real estate information. ULI-the Urban Land Institute (ULI), a nonprofit educational and research organization association, has one of the better sites: "www.uli.org". Students should review the ULI site and its links early in the course. ULI publishes a wide variety of materials useful to private and public sector participants in the real estate development process. Use of computer-based spreadsheets is commonplace in the real estate industry. Students are encouraged to create their own spreadsheet programs, as appropriate, in completing course assignments. It is very important, however, that students understand the underlying concepts of and methods to complete basic real estate calculations (calculating net operating income, debt service constants and payments, before tax cash flow, amortization and depreciation schedules, taxable income, after tax cash flow, and net cash from sale) as well as basic measures of return (return on total asset, cash-on-cash return, net present value, and internal rate of return) before using the computer as an efficient mechanical and analytical aid. Students must have available at each class one of the many hand-held financial calculators that can execute basic real estate financial calculations. The Hewlett Packard HP-12C, HP-19BII, or HP-17BII financial calculators are all acceptable, but less elaborate, less expensive financial calculators are also available and perfectly adequate.

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BUS TOUR A bus tour of representative Boston and Cambridge real estate projects will be held on Saturday, October 29 from 8:00 a.m. - Noon. There will be a bus rental charge (approximately $10-$15 per student depending on class size). If the class size exceeds bus capacity, seats will be reserved on a “first come-first served” sign-up process. WRITTEN ASSIGNMENTS AND QUIZ Course requirements include three written assignments, a midterm quiz, and a final team report/presentation. Late assignments will not be accepted without prior permission from the instructor. 1. Three written assignments are due at the beginning of class on the following dates:

October 3: Feasibility Study Exercise, Part I November 2: Angus Cartwright, Jr. Financial Analysis November 7: Angus Cartwright, Jr. Investment Recommendations

Students should note that the calculations required for the Angus Cartwright, Jr. assignment due November 2 will require a significant amount of preparation time. Students may find it helpful to begin working through the financial calculations as the respective quantitative items dealt with in the case are covered in earlier classes. 2. There will be a quiz on November 30. 3. Team Written Reports for the Soldiers Field Site Exercise will be due from all teams on December 5 Team Class Presentations for this exercise will be held on December 5 and December 7. 4. Students are always encouraged to work together in reviewing and discussing any written assignment. However, with the exception of the Angus Cartwright financial analysis assignment due November 2 and the Team Development/Investment Analysis due December 5, students must individually write and submit all other written requirements. 5. As previously mentioned, students are expected to attend all classes. GRADING Grades will generally conform to the Dean’s recommended grading distribution policy and will be determined based upon the following inputs:

Classroom Participation Quality 20%

Written Assignments 25%

Quiz 15%

Soldiers Field Site Exercise 40%

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SEPTEMBER 12 (MONDAY) SHOPPING DAY SESSIONS THE SHOPPING DAY SESSIONS WILL BE HELD IN LITTAUER 150, THE REGULAR HUT-265 CLASSROOM

The first Shopping Day session will run from 4:40 p.m. to 5:15 p.m. followed by the second session from 5:25 p.m. to 6:00 p.m. The case assignment to be prepared for the September 14 class will be distributed at the Shopping Day sessions and will also be available from Faculty Assistant Veronica McClure at Littauer, Room 105 and on the course web page for students who have access.

SEPTEMBER 14 (WEDNESDAY) COURSE INTRODUCTION/COURSE REQUIREMENTS ESTABLISHING INVESTMENT OBJECTIVES CREATING REAL ESTATE VALUE Reading A. U.S. Department of Housing and Urban Development, Office of Housing Multifamily Sale

Program: Foreclosure Sale Prospectus, Brookridge Apartments, Nashville, Tennessee. Date of Bid: October 20, 1994 (Available at Shopping Day sessions and from Faculty Assistant Veronica McClure at Littauer, Room 105.

B. Poorvu, pp. 1-24, (Characteristics of real estate industry) and pp. 15-26 (Current trends

and challenges in real estate industry) C. Miles, pp.109-182 (History of real estate development in United States) and pp.547-557 (Glossary) Preparation A. Be prepared to discuss the questions attached to the Brookridge Apartments case. In

particular, be prepared to discuss how you would attempt to value this property. Begin by defining your investment objectives. What would your maximum bid be? Be prepared to bid in the auction that will be conducted in class.

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SEPTEMBER 19 (MONDAY) UNDERSTANDING HOW REAL ESTATE VALUE IS CREATED: NET OPERATING INCOME (NOI), ADJUSTED NOI, WEIGHTED AVERAGE COST OF CAPITAL (WACC) AND RETURN ON TOTAL ASSET (ROTA) Preparation A. "Brookridge Apartments" Weighted Average Cost of Capital (WACC) assignment

distributed at prior class and also available on the course web site. In addition, continue to review the Brookridge Apartments case and the explanation of

the Brookridge calculations distributed at the prior class. Be prepared to discuss the strengths and weaknesses of Brookridge Apartments from an investor's perspective.

Reading A. Poorvu, pp. 412-422 (Harvard Business School technical note, "Financial Analysis of

Real Property Investments"). If possible, read the entire note (pp. 412-438) at this time. SEPTEMBER 21 (WEDNESDAY) MORTGAGES, DEBT FINANCING FUNDAMENTALS, FINANCIAL LEVERAGE, AND BEFORE TAX CASH FLOW (BTCF) Preparation A. Marchant, "Debt Service Exercise" (Programmed learning exercise for use in this

course. Fall 2004) B. Marchant, "Using Your Financial Calculator to Calculate an Annual Constant" (Programmed learning exercise prepared for use in this course. Fall 2004) C. Marchant, "Mortgage Underwriting Exercise" (Programmed learning exercise for use in this course. Fall 2004) D. Marchant, "Financial Leverage Exercise" (Programmed learning exercise for use in this course. Fall 2004) Reading A. Poorvu, pp. 423-428 (Harvard Business School technical note, "Financial Analysis of Real Property Investments") B. Miles, pp. 63-79 (Real estate finance: institutional setting) and pp. 81-91 (Financial theory: the logic behind real estate financing decisions)

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SEPTEMBER 26 (MONDAY) UNDERSTANDING THE BASIC FEDERAL INCOME TAX EFFECTS: AFTER TAX CASH FLOW (ATCF) Note: You are not expected to become real estate tax experts. You are expected to understand and be able to calculate basic depreciation schedules, amortization schedules, taxable income, income taxes due or tax shelter benefits created, and ATCF. Therefore, your reading should focus on general tax policy, depreciation guidelines and methods, respective tax rates, and capital gains tax treatment. Understanding how individuals, limited partnerships, limited liability companies, real estate investment trusts, corporations, and community development corporations structure investments to maximize tax benefits by minimizing tax liabilities is particularly important. Preparation A. "Brookridge Apartments" assignment distributed at prior class B. Marchant, "Depreciation Exercise" (Programmed learning exercise for use in this course.

Revised Fall 1994) Reading A. Poorvu, pp. 439-460 (Harvard Business School technical note, "Note on Taxation") and

pp. 461-470 (Harvard Business School technical note, "Note on Forms of Real Estate Ownership")

B. Miles, pp. 69-71 (Forms of ownership)

SEPTEMBER 28 (WEDNESDAY) FUTURE BENEFITS OF REAL PROPERTY Preparation A. "Brookridge Apartments" Net Cash from Sale exercise distributed at prior class. In

addition, be prepared to discuss what your Net Cash from Sale objectives would be as an investor and how important this component of return would be compared to the respective Cash Flow and Tax Benefits components of return.

Reading A. Poorvu, pp. 455-459 (Harvard Business School technical note, "Note on Taxation") and

pp. 431-438 (Harvard Business School technical note, "Financial Analysis of Real Property Investments")

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OCTOBER 3 (MONDAY) FEASIBILITY STUDY EXERCISE, PART I / PROPOSED MULTI-FAMILY HOUSING DEVELOPMENT IN RALEIGH, NORTH CAROLINA (FINANCIAL OBJECTIVES, DEVELOPMENT PROCESS, SOURCES AND USES OF FUNDS, AFTER TAX CASH FLOW PROJECTIONS, TRADITIONAL MEASURES OF RETURN) Written Assignment Due Submit at the beginning of today's class answers to the questions listed at the end of the "Feasibility Study Exercise". Be sure to complete Exhibit A. Retain a copy of your submission for use during the class discussions. This exercise presents an excellent opportunity to use your spreadsheet design and analysis skills. To simplify grading, please "highlight" any answers submitted in a spreadsheet format. Reading A. Marchant, "Feasibility Study Exercise" Fall 2004 (Exercise prepared for use in this

course) B. Miles, pp. 337-361 (Feasibility study) OCTOBER 5 (WEDNESDAY) FEASIBILITY STUDY EXERCISE, PART II / PROPOSED MULTI-FAMILY HOUSING DEVELOPMENT IN RALEIGH, NORTH CAROLINA (NET CASH FROM SALE, DISCOUNTED CASH FLOW ANALYSIS, INTERNAL RATE OF RETURN, COMPUTER-ASSISTED REAL ESTATE ANALYSIS, SENSITIVITY ANALYSIS) Preparation A. The assignment for this class will be distributed at the conclusion of the Feasibility Study Exercise, Part I class. Be sure to carefully review the notes explaining how Net Present Value (NPV) and Internal Rate of Return (IRR) return measures are calculated before you complete the assignment for this class. These notes are included at the end of the assignment Reading A. Poorvu, pp. 435-438 (Harvard Business School technical note, "Financial Analysis of

Real Property Investments") B. Miles, pp.363-378 (Market analysis: collecting, validating, and understanding market data), pp. 379-398 (Data sources supporting market studies)

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OCTOBER 10 (MONDAY) UNIVERSITY HOLIDAY/COLUMBUS DAY - NO CLASS Assignment in Lieu of Class Meeting Visit the Soldiers Field site prior to our next class in preparation for the team assignment due December 5. Prepare an outline response to Question 1 in "The Soldiers Field Site Development/ Investment Analysis". Reading A. Marchant, "Soldiers Field Site: Development Opportunities" Revised Fall 2005. (Exercise prepared for use in this course. Distributed at prior class. B. Miles, pp. 185-202, pp. 203-216 (Inception of an idea), (Market research: a tool for generating ideas), and pp. 217-244 (Refinement of an idea) C. "Master Money Matrix-Feasibility Edition" (Available on Web at: www.fantinigorga.com in “Publications” section.) OCTOBER 12 (WEDNESDAY) INVESTMENT ANALYSIS (ANDERSON STREET) Reading A. Poorvu, pp. 27-41 (Harvard Business School case, "Anderson Street") Questions for Discussion 1. What are the Leonards' financial and non-financial objectives? 2. What is the total asset cost? (Uses of Funds) 3. What funds are available to rehabilitate and purchase the property? (Sources of Funds) 4. Prepare a simple "Sources and Uses of Funds" Statement. 5. What is the Return on Total Assets (ROTA)? (ROTA equals Net Operating

Income divided by Total Asset Cost)

6. What Before Tax Cash Flow (BTCF) could the Anderson Street property produce for the Leonards? What is the Leonards' Cash-on-Cash Return? (Cash-on-Cash Return equals BTCF divided by Equity)

Note: Assignment continued on next page

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7. What After Tax Cash Flow (ATCF) could be generated by Anderson Street for the Leonards? Use assumptions listed below. 8. If the Leonards expect to sell the property after owning it for five years, how

should they estimate its future value? Using reasonable assumptions based upon case information, what do you think the sales price might be after five years? After deducting the costs of sale, any capital gains tax due, and the outstanding mortgage balance, what would be the Leonards' Net Cash from Sale?

9. What is the Net Present Value (NPV) of this investment assuming a sale at the

end of year five and a discount rate of 12%? Explain your assumptions and show your ATCF calculations for years 1-5 as well as your Net Cash from Sale calculation. Do the NPV calculation "by hand" and then check your answer by using your financial calculator or computer software.

10. Assuming a sale of the property at the end of year five, what is the Internal Rate

of Return (IRR) for the Leonards on this investment? Do the IRR calculation "by hand" and then check your answer by using your financial calculator or computer software.

11. What risks/rewards might there be in this investment? Should the Leonards purchase

this property?

12. Will the Leonards achieve their objective of living "rent free"? Will they achieve their other financial and non-financial objectives? 13. Is there any additional information you would want to have before making an investment

decision on this property? Note: The Leonards' purchase would have been subject to the Tax Reform Act of 1986. Use the following assumptions to answer the questions listed above:

A. Assume a land value of $10,000 per unit. B. Use a 27.5 year straight line depreciation method.

C. Assume a 31% tax rate for ordinary income and a 28% tax rate for capital gains income. D. Assume for the purpose of this analysis that the Leonards have adequate passive

income from other real estate investments to fully utilize any tax shelter benefits that might be generated by this investment.

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OCTOBER 17 (MONDAY) PERMITTING, DESIGN AND DEVELOPMENT EXERCISE: SUBURBAN OFFICE BUILDING Reading and Preparation A. Marchant, "Suburban Office Building Development Exercise," Fall 2003 B. Miles, pp. 401-455 (Environmental, design, construction and leasing issues) C. Crawford, Paul and Susan Clark (Undated), “Updating the Zoning Code-A Briefing for

Decision-Makers” www.ci.san-ramon.ca.us/zoning/images/zoning-primer.pdf OCTOBER 19 (WEDNESDAY) REAL ESTATE DEVELOPMENT PROCESS: DEVELOPING AN INNER CITY SUPERMARKET Preparation

Complete the ranking list included in "Critical Real Estate Development Process Components for Developing an Inner City Supermarket" and be prepared to discuss your conclusions. The class will begin with a more general discussion of the advantages and disadvantages of supermarkets as vehicles for neighborhood revitalization and economic development. Be prepared to discuss your ideas on this topic.

Reading A. Marchant, "Critical Real Estate Development Process Components for Developing an Inner City Supermarket", Fall 2005 B. Stegman, Michael & Jennifer Lobenhofer (August 2001), “Creating Value in Inner City

Supermarkets the Community Pride Way: A Case Study.” Chapel Hill, NC: Center for Community Capitalism.

www.kenan-flagler.unc.edu/assets/documents/CC_innerCity_Supermarkets.pdf C. www.icic.org

Very useful site to understand the theory and practice of inner city retail development. The Initiative for a Competitive Inner City (ICIC) was founded in 1994 by Professor Michael Porter of Harvard Business School. Scan the entire site; focus on the "Our Research” and “Publications" sections.

D. Miles, pp. 3-15 (Introduction to real estate development process and development team)

and pp.17-59 (Land and demographics in the United States)

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OCTOBER 24 (MONDAY) UNDERSTANDING REAL ESTATE MARKETS IDENTIFYING REAL ESTATE DEVELOPMENT OPPORTUNITIES Reading TBA OCTOBER 26 (WEDNESDAY) THE LENDER'S PERSPECTIVE: WHAT'S IMPORTANT IN EVALUATING AND UNDERWRITING REAL ESTATE PROJECTS? COMPARING CONSTRUCTION AND PERMANENT LOANS CURRENT DEBT AND EQUITY MARKETS Reading A. “Master Money Matrix-Overview Edition", "Master Money Matrix-Apartment Finance

Edition", "Master Money Matrix-Sources Edition", "Master Money Matrix-Feasibility Edition" and “Master Money Matrix-Retail Financing Edition” www.fantinigorga.com After reviewing these particular documents located at the “Publications” section of this site, scan the remainder of the Fantini & Gorga/iCap Realty Advisors site.

B. Korpacz Real Estate Investor Survey (Go to the “Free Stuff” section at this Web site and

review the sample issue of the “Korpacz Real Estate Investor Survey” and the “Current Issue Highlights”.

www.pwcreval.com/survey/home.asp C. Miles, pp.93-105 (Innovations in real estate finance)

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OCTOBER 29 (SATURDAY) BUS TOUR OF REPRESENTATIVE BOSTON AND CAMBRIDGE REAL ESTATE PROJECTS The bus will leave from the front of Taubman at 8:00 a.m. promptly and return at Noon. Reminder: There will be a bus rental charge (approximately $10-$15/student) depending on class size). The bus tour will be held “rain or shine”. Bring a copy of the itinerary that has been posted on the course web page. OCTOBER 31 (MONDAY) SOLDIERS FIELD SITE EXERCISE TEAM MEETINGS WITH INSTRUCTOR Although there will be no formal class meeting, the instructor will meet briefly with each student team to answer any questions and review progress to date on the assignment due December 5. Meetings will be held in Littauer 150. The schedule will be posted on the course web page. NOVEMBER 2 (WEDNESDAY) MEASURES OF REAL ESTATE VALUE AND RETURN (ANGUS CARTWRIGHT, JR. / CLASS I) Reading A. Poorvu, pp. 103-117 (Harvard Business School case, "Angus Cartwright, Jr.") B. Miles, pp. 83 (Discounted cash flow analysis) Written Assignment Due Submit "Angus Cartwright" Exhibits 1-10, completed for all properties. Note: This is a long assignment. Be sure to budget adequate time for its preparation. You are encouraged to work together with one or two classmates on this assignment. If you do work with classmates, submit only one complete assignment for the group. Keep a copy for your own use during class and to prepare your investment recommendations for the following class.

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NOVEMBER 7 (MONDAY) INVESTMENT RECOMMENDATIONS (ANGUS CARTWRIGHT, JR. / CLASS II) Reading A. Poorvu, pp. 103-117 (Harvard Business School case, "Angus Cartwright, Jr.") Written Assignment Due Assuming that you are the investment advisor Angus Cartwright, prepare a practical memorandum to either Judy DeRight or John DeRight explaining which property (or properties) you feel would be the best investment opportunity for her/him. Be sure to substantiate your recommendations based upon each individual's personal investment objectives and the financial characteristics of your recommended property or properties. Your memo must be submitted at the beginning of class and must not exceed two double-spaced typed pages, not including relevant exhibits. In addition to your investment recommendation for one of the investors, prepare a one page memo that outlines and explains the “next steps” that should to be taken to further investigate the recommended project(s) and consummate the acquisition(s). From both a learning and grading perspective, your investment recommendations are the most important component of the Angus Cartwright exercise. Sound and carefully argued investment recommendations will demonstrate that you not only understand the arithmetic but also can interpret the results and distinguish which information is most meaningful. Although you are being asked to submit written investment recommendations for only one of these investors, remember that you represent both of them and that both are important clients. During class discussion you will also be asked to explain your investment recommendations for each client. Note: This "recommendation" phase of the Angus Cartwright exercise is not a team assignment: each student must individually prepare and submit a memo. Discussion with classmates prior to the actual writing of your recommendations is always encouraged. Retain a copy of your memos for use during the class discussion.

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NOVEMBER 9 (WEDNESDAY) PRIVATE DEVELOPER’S PERSPECTIVE: DEVELOPING A MAJOR INNER CITY MIXED USE COMPLEX Kirk A. Sykes, AIA has been invited to participate in this class. Mr. Sykes is a Principal of Crosstown Associates. Crosstown Associates, in conjunction with Corcoran Jennison Companies and operating as CJ Crosstown Associates, is the developer of Crosstown Center, a $140 million, mixed-use development (hotel, parking garage, office and retail) being developed in a HUD-designated Empowerment Zone in or near four of Boston's neighborhoods: the South End, Roxbury, Newmarket, and Lower Roxbury. The hotel, a 175-room Hampton Inn & Suites, and the 650-space public parking garage began operations in 2004. Formerly President of Primary Group, Developers & Architects, Mr. Sykes has recently become President of the newly formed New Boston Urban Strategy America Fund (NB-USA). Reading A. www.bizjournals.com/boston/stories/2002/02/25/story5.html (Read this Crosstown Center article and the more recent “Related Topics” articles that are also listed) B. Miles, pp. 269-292 (Meshing public and private roles in the development process) C. www.icic.org (Initiative for a Competitive Inner City) NOVEMBER 14 (MONDAY) REAL ESTATE JOINT VENTURES AND THE PERMITTING PROCESS FOR A MIXED-USE PUBLIC/PRIVATE LARGE SCALE PROJECT (FAN PIER) ROLES OF THE PUBLIC SECTOR UNDERSTANDING NIMBY, NOTE, NIMTOO, BANANA, CAVE, AND LULU Reading A. Poorvu, pp. 71-90 (Harvard Business School case, "Fan Pier") B. Miles, pp. 247-267 (Roles of the public sector) Questions for Discussion 1. What were the goals of each of the players in forming this partnership? How would you

evaluate the relationship of Athanas and HBC over the years? Why did the relationship fail?

2. In general, what "ingredients" are necessary for a successful real estate joint venture partnership for large scale real estate development projects? Note: a significant portion of the class discussion will focus on this question.

3. Assume you are Athanas. Describe three potential negotiating alternatives that you might try with HBC following the Superior Court decision on April 18, 1989.

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NOVEMBER 16 (WEDNESDAY) DEVELOPING MIXED-INCOME HOUSING IN AN AFFLUENT SUBURBAN COMMUNITY Reading A. Marchant, “Y.I.M.B.Y. - Developing Mixed-Income Housing in an Affluent Suburban Community”, Revised Fall 2005 (Case) Questions for Discussion 1. Should Kelly proceed with this development? What risks might there be? Do you think the rewards are worth the risks? Are there any non-financial risks and rewards that should be taken into consideration? 2. How would the risks and rewards of a seven lot, detached single family home subdivision development at this site compare with those of the proposed 40B development? 3. Do you think that Kelly’s “back-of-the-envelope” pro forma is adequate to make a go/no-go decision? What other questions/issues might you want to investigate before making a go/no-go decision? 4. If you were a member of the Dover Zoning Board of Appeals and Kelly proceeded with this Comprehensive Permit application for 150 townhouse units (100 - 2 bedroom units and 50 - 3 bedroom units) with 38 affordable units and 112 market units, what changes, if any, might you try to negotiate to lessen any perceived or real adverse impacts on the town? What conditions might you place on your approval of the project, if you were generally in favor of the project? 5. If you owned a house adjacent to the subject site and were an opponent to the proposed development, what arguments might you use to delay, downsize, or defeat the proposed 150-unit Chapter 40B development? How should Kelly counter these likely arguments? 6. Could/should a program similar to the Massachusetts Comprehensive Permit program be enacted in your home state? Do you feel that Chapter 40B is an effective tool to create affordable housing? What families are served by the Chapter 40B program? Would you recommend any changes to the structure of the Chapter 40B program?

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NOVEMBER 21 (MONDAY) CREATING AND MANAGING A REAL ESTATE INVESTMENT LIMITED PARTNERSHIP FUND Reading A. www.newbostonfund.com Focus on the "Company Profile" (Strategy, History, Team and Org Chart), "Properties" and “Recent Sales/Acquisitions” sections. B. Miles, pp. 459-480 (Property, asset, and portfolio management), pp. 481-499 (The challenge of marketing and sales) Note: Jerome L. Rappaport, Jr., KSG MCRP '81, has been invited to participate in this class. Mr. Rappaport is President of New Boston Fund, Inc.(NBF), a company formed to oversee the acquisition and asset management activities of several limited partnership funds created to invest in certain real estate assets. Founded in 1993, New Boston Fund manages over $450 million of equity capital and a total real estate portfolio valued at over $1.2 billion, located primarily along the Eastern seaboard and throughout the Midwestern United States. More recently, NBF has formed a real estate development subsidiary. Note: Mr. Rappaport’s participation has not yet been confirmed NOVEMBER 23 (WEDNESDAY) NO CLASS / BUS TOUR ON SATURDAY, OCTOBER 29 SUBSTITUTED FOR THIS CLASS NOVEMBER 28 (MONDAY) THE PUBLIC DEVELOPER'S PERSPECTIVE: STRUCTURING SUCCESSFUL PRIVATE-PUBLIC JOINT VENTURES Reading TBA Guest Speaker TBA

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NOVEMBER 30 (WEDNESDAY) QUIZ Preparation TBA Although the quiz will be designed to be completed by well-prepared students within the normal class time, students needing additional time may have until 7:00 p.m. to complete the quiz. DECEMBER 5 (MONDAY) and DECEMBER 7 (WEDNESDAY) REAL ESTATE DEVELOPMENT EXERCISE: SOLDIERS FIELD PARK SITE STUDENT PRESENTATIONS Reading and Preparation A. Marchant, "Soldiers Field Site: Development Opportunities" Fall 2005 Presentation times will be assigned once class enrollment is finalized and teams are formed. Report and presentation guidelines will also be distributed. Written reports from all groups must be submitted on December 5.

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DECEMBER 12 (MONDAY) DISCUSSION OF SOLDIERS FIELD SITE PRESENTATIONS COURSE SUMMARY COURSE EVALUATION Reading and Preparation TBA

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HUT-265 COURSE OUTLINE (FALL 2005)

CLASS DATE (DAY) TOPIC

9/12 (Mon)

Shopping Day First Session: 4:40 p.m. – 5:15 p.m. Second Session: 5:25 p.m.- 6:00 p.m.

1

9/14 (Wed)

Introduction/ Course Requirements Investment Objectives / Creating Real Estate Value Brookridge Apartments (Case)

2

9/19 (Mon)

WACC, NOI , Adjusted NOI, and ROTA

3

9/21 (Wed)

Mortgage Fundamentals/Financial Leverage/BTCF

4

9/26 (Mon)

Income Tax Effects/ATCF

5

9/28 (Wed)

Future Benefits (Net Cash from Sale)

6

10/3 (Mon)

Feasibility Study Exercise, Part I (Written Assignment Due)

7

10/5 (Wed)

Feasibility Study Exercise, Part II

10/10 (Mon)

No Class / Columbus Day Holiday (Soldiers Field Site Team Visits)

8

10/12 (Wed)

Anderson Street (Case)

9

10/17 (Mon)

Design/Development Exercise (Suburban Office Building)

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10/19 (Wed) Real Estate Development Process: Developing an Inner City Supermarket

(Exercise)

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10/24 (Mon) Understanding Real Estate Markets: Identifying Real Estate Development Opportunities

12 10/26 (Wed) The Lender’s Perspective

13 10/29 (Sat) Bus Tour (Saturday Morning / 8:00 a.m.- Noon)

14 10/31 (Mon) Soldiers Field Site Exercise Team Meetings with Instructor

15 11/2 (Wed) Angus Cartwright, Jr. I (Case) (Written Assignment Due)

16 11/7 (Mon) Angus Cartwright, Jr. II (Case) (Written Assignment Due)

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CLASS DATE (DAY) TOPIC

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11/9 (Wed) The Private Developer’s Perspective Guest Speaker: Mr. Kirk Sykes

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11/14 (Mon)

Real Estate Development Joint Ventures: Fan Pier (Case)

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11/16 (Wed)

Developing Mixed-Income Housing in an Affluent Suburban Community (Case)

20 11/21 (Mon) Equity Investor's Perspective

Guest Speaker: Mr. Jerome L. Rappaport, Jr. (Invited) 11/23 (Wed) No Class (Bus Tour on 10/29 Substituted for this Class)

21

11/28 (Mon)

The Public Developer's Perspective: Structuring Successful Private-Public Joint Ventures Guest Speaker: TBA

22 11/30 (Wed) Quiz

23 12/5 (Mon) Development/Investment Analysis

(Soldiers Field Site Exercise: Team Written Assignment Due from All Teams)

(Soldiers Field Site Exercise: Student Presentations)

24

12/7 (Wed) Development/Investment Analysis (Soldiers Field Site Exercise: Student Presentations)

25

12/12 (Mon) (Final Class)

Evaluation of Student Presentations

Course Summary

Course Evaluation