As evidenced by recent experience, real estate development is a cyclical enterprise. Development projects today often require complex financing and the ability to support estimates of cash flows through both the development and holding periods. This second course in commercial real estate finance explores the techniques of financing commercial projects through the various phases of development site analysis, land acquisition, development, and construction. The central objectives of the course include providing students with hands-on experience in recognizing and mitigating risk. The key extensions from Real Estate Finance I include a focus on equity returns and the impact of time on those returns.
This second course introduces the notion of the time value of money and incorporates it into the analytical process. This includes constructing the discounted cash flows over the construction and holding period, with specific attention paid to analyzing and accounting for contingencies, tax effects, and financing alternatives. It also explores how the deal structure allocates risk and return to each of the investor groups—i.e., the investment waterfall. Other topics include interim and permanent lending procedures, use of income and expense statements, construction disbursement schedules, sales and leaseback, and leasehold financing—all examined through both case studies and workshop problems. The course focuses on the lender’s perspective, the equity investor’s perspective, and dynamic cash flow analysis or total property return metrics—i.e., internal rate of return (IRR) and net present value (NPV)—with an introduction to options analysis in real estate development decision making.
Case studies examined throughout the course will illuminate concepts, providing hands-on experience, and industry guest speakers will provide current examples of deal structures and industry data.
Participants are expected to bring a laptop computer with Microsoft Excel to the course.
Brent C. Smith
Virginia Commonwealth University School of Business
Department of Finance Insurance and Real Estate
Smith is an associate professor in the Department of Finance Insurance and Real Estate in the School of Business at Virginia Commonwealth University. He holds a master of business degree from the University of Notre Dame and holds a PhD in finance and economic geography from Indiana University. Smith’s research interests include commercial property markets, mortgage performance, housing finance, and valuation.
Smith was a recipient of the Outstanding Reviewer Award in 2009 for real estate economics, and received the Emerging Scholar Award in 2010 from the American Real Estate Society. In addition, he is a postdoctoral honoree at the Weimer School of Advanced Studies in Real Estate and Land Economics, Florida. His research papers have received numerous grants and acknowledgments, including two best paper awards from the American Real Estate Society. Smith was recently inducted as one of only three academic members into the Real Estate Councilors’ Group of America.
Smith’s recent research is directed at issues of risk and valuation. Within those themes, the areas of study include commercial property markets, mortgage performance, investment finance, and public policy and tax influences. Articles produced from this activity are published or scheduled for publication in the Journal of Real Estate Finance and Economics, Real Estate Economics, Journal of Real Estate Research, Urban Affairs Review, Journal of Property Tax Assessment and Administration, Journal of Housing Economics, Journal of Housing Research, and Economic Quarterly, and Journal of Public Budgeting, Accounting, and Financial Management.
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