URSP 664 & PUAF 698G:   Real Estate Development for Planners

RED Program: Fundamentals of Real Estate Development and Finance

Fall Semester, 2006

Visiting Lecturers David Falk and Andrew Frank

 

Room 1101, Architecture Building

Tuesdays, 4:00 - 6:30 p.m.

 

            Objective of the Course: The principal purpose of this course is to introduce planning, architecture, public policy, and students enrolling in the Real Estate Development Program to the real estate development process primarily from the point of view of the private entrepreneurial developer. This course could well be sub-titled, “How developers think.” We will examine how a private developer gets into the development business, the stages of a development, and the tasks that must be accomplished at each stage, including particularly the financial requirements. We will review the basic financial concepts underlying the development process. We will learn to use financial spread-sheets. We will learn the language of development and developers; in one sense, this is a course teaching the “foreign” language of real estate development. We will plan and negotiate several development projects. We discuss some of the public policies affecting real estate development, particularly housing. Although we concentrate on the development of both market rate and government-assisted multifamily housing, we touch on other varieties of real estate development, including commercial office buildings and historic preservation.

 

            Undergraduate students can be admitted to the course only with the approval of their academic advisers.

 

            Required Books: You are asked to purchase the following:

 

Mike E. Miles, Gayle Berens, & Marc A. Weiss, Real Estate Development, Principles and Process, 3d ed., Urban Land Institute, 2000 (referred to as “Miles, Berens & Weiss”).      

 

William J. Poorvu, The Real Estate Challenge, South-Western Publishing, 1996 (referred to as “Poorvu”).

 

David Falk, The Fundamentals of Real Estate Finance, 2006 edition, available from Copy Services in Room 1406, Van Munching Hall (referred to as “Falk”) (Note: You are paying only the cost of duplication by Copy Services.)

 

Course Packet for URSP 664, available from Copy Services in Room 1406, Van Munching Hall

 

Some assigned readings can be read on line at the web sites identified in the syllabus.

 

            Recommended Reference Book:

 

            Richard B. Peiser & Anne B. Frej, Professional Real Estate Development, The ULI Guide to the Business, 2d ed., Urban Land Institute, 2003. – This book should be owned by any person starting out in the development business and by architects, planners and government officials who will be dealing with developers and development.  The book describes the development process for each type of real estate: land development, multifamily residential, office, industrial, and retail.  However, it is not a good text for a course like URSP 664 because of its repetitive structure.

 

 

            Class Attendance and Class Assignments:   Attendance at class is essential. Two classes will be held in the computer lab in the basement of LeFrak Hall. Students are expected to do all readings and assigned problems and case studies in advance of class.

 

            The Fundamentals of Real Estate Finance text includes one or more problems following each chapter that illustrate the principles described in the chapter. One or more students will be selected at random to be prepared to show the class how to solve the assigned problems. The students should be prepared either to write their answers on the blackboard before the start of class or to distribute their solutions to the class in a handout.

 

            Individual students will also be assigned to prepare answers to one or more of the questions in the Appendix on the case studies in Poorvu and Miles, Berens & Weiss. The student’s presentation is to be entirely oral. The rest of the class is to think through their own answers to these questions as part of their preparation for class, and be prepared to agree with, challenge, or provide some alternatives to the views of the student presenter.

 

            On the afternoon of November 28, we will be making a field visit in the 14th Street area of Northwest Washington, D.C. to the Horning Brothers development known as Tivoli Square. This is a $40 million development of an entire city block, involving the restoration of the historic Tivoli Theater (the new home of the Spanish-language GALA Theater), the construction of a 53,000 square foot Giant Supermarket, another 56,000 square feet of commercial and office space, and 40 housing units, including 8 of affordable housing.  This visit will take the entire afternoon, but will be scheduled, taking rush hour conditions into consideration, to assure that students will be back on campus by 6:30 for their evening classes.

 

            Written Assignments: There will be two written assignments. Each is a practical exercise in preparing and negotiating development proposals from the perspective of the entrepreneurial real estate developer, both for-profit and non-profit. The assignments are based on actual situations in Baltimore.

 

            Hand Calculators: Students will need to purchase a financial hand calculator that can perform Net Present Value and Internal Rate of Return calculations as well as standard loan financing calculations. The Hewlett-Packard 12C (costing around $70), as the grand-daddy in the field, has cachet in the development world. A Hewlett-Packard HP 10B11 is just as good for our purposes in this course at more than half the price. (The Texas Instruments financial calculator, TI BA11 Plus, is not recommended because its functions are not the same as the Hewlett Packards, which can lead to confusion in our class discussions.) Some students have successfully used a spreadsheet program on their laptops, such as Excel, which would do away with the need to acquire a financial hand calculator. 

 

            Course Grading:

 

            Class preparation and participation                      10%

            (including preparation of problems and case study questions)

            Mid-term exam                                                 25%

            Written Assignment # 1                                     20%

            Written Assignment # 2                                     20%

            Final Examination                                              25%

 

 

 

 

Course Instructors

                                                                                   

David Falk                                                        e-mail:  dfalk@umd.edu

Senior Fellow, School of Public Policy                 tel:        301-405-1785 (at University)

Room 2129A Van Munching Hall                                   202-362-1966 (at home)             University of Maryland                                                 

 

            Former practicing real estate attorney, Lane & Edson, P.C., Washington, DC

Former Director, Community Development Administration, Maryland Department of         Housing & Community Development

 

            Office hours: By appointment, but I’m generally available most of the time.

 

Andy Frank                                                       e-mails: Afrank@baltimoredevelopment.com

Executive Vice President                                   tel:        410-837-9305, ext. 325 (at office)

Baltimore Development Corporation,                              410-366-1356 (at home)

                  an agency of the City of Baltimore                          

 

Former Senior Development Officer, Department of  Housing & Community Development, Baltimore City

 

 

Weekly Schedule:  Reading assignments are subject to changes that will be announced in class.

 

September 5   Overview of the Development Process

 

Complete the Student Questionnaire. This is so your instructors know who you are and can reach you outside of class when that becomes necessary.

 

            Summary of the development process in the United States:

 

•                                                          The players in real estate development.

•                                              Basic structure of a real estate development.

C                       Phases of a new multifamily housing development: From conception to demise.

 

 

September 12 Fundamental Financial Concepts

                        Overview of Development: “Europa Center” Case Study

 

            Falk, chapter 1,  “Financial Concepts You Need to Understand”

            Prepare the accompanying Problems in chapter 1.

 

            Miles, Berens & Weiss, chapters 1, 3 & 10.

            Poorvu, Anderson Street -- See Appendix for your assignment.

 

Miles, Berens & Weiss, Case Study:  “Europa Center,” begins at page 7 and continues throughout             the book.

..

 

September 19 Back of the Envelope Feasibility

                        Preparing Market Studies

           

            Falk, chapter 2, “Back of the Envelope Feasibility”.

            Prepare the accompanying Problems in chapter 2.

 

Miles, Berens & Weiss, chapters 11, 12, 16 and skim 17 & 18 (only pp. 385 -393 in ch. 18)

 

“Demographic Drivers,” Joint Center for Housing Studies of Harvard University, The State of the Nation’s Housing 2006, pp. 10-14, on line (www.jchs.harvard.edu)..

 

“Housing for Seniors” from Urban Land Institute, Multifamily Housing Development Handbook, Urban Land Institute 2000, pp. 222-227, in the Course Packet..

           

            Howard & Associates, Jefferson Heights Senior Apartments (June 2001 & May 22, 2002) in the   Course Packet.

 

Guest:   Evelyn Howard

            President, Howard & Associates

            Bethesda, Maryland      

 

 

September 26             Debt Financing for Development

                                    Introduction to Project Financial Statements

                                    Debt Financing for Home Mortgages

                                    The Secondary Mortgage Market and Fannie Mae

                                   

Falk, chapter 3,  “Calculating Available Debt Financing”.

            Prepare the accompanying Problems in chapter 3

 

            Falk, chapter 3A, “Introduction to Project Financial Statements”

 

            Miles, Berens & Weiss, Chapters 4 & 6.

 

            Poorvu, The Bourland Companies – See Appendix for your assignment.

 

            Poorvu, The Millegan Creek Apartments, pages 42-47, 50-54. Read this case study for a look at    how a commercial bank processes a developer’s request for a construction loan.

 

Elizabeth Renuart, “An Overview of the Predatory Lending Process,” Housing Policy Debate, Vol. 15, Issue 3 (2004) on line (www.fanniemaefoundation.org/programs/hpd.shtml).  Read only pages 467-479.

            Materials on the Secondary Mortgage Market, all in your Course Packet.

                        Figure 2: “Bringing Together Two Sets of Customers: Borrowers and Investors”

                        “Struggling Mortgage Giant,” New York Times, February 18, 2006.

                        “Rating a Bond: A Key to the Code”

                        “Understanding Fannie Mae as a Securities Issuer”

                        “Basics of Fannie Mae MBS” (2005)

                        Search Tools & Resources: “Understanding Fannie Mae Mortgage-Backed Securities”

                        Fannie Mae News Release, November 29, 2005.

                        “Basics of Fannie Mae MBS” (2006)

                        “Basics of REMICs”                

                        Prospectus: “Fannie Mae Guaranteed Trust Pass-Through Certificates; Fannie Mae                                 Multifamily Grantor Trust 2000-T5” (excerpts)

                        “Understanding Fannie Mae Debt”: “Introduction to Fannie Mae Debt Securities”

                                    “Debt Issuance Overview”                   

                        Jerry Knight, “We’re Stuck With The Mortgage Monsters,” Washington Post, May 15,                             2006, at page D01..

 

 

                                   

October 3        Developer’s Profits: Introduction to Syndication

                        Developers, Amateur and Professional

           

            Falk, chapter 4,  “How Developers Make a Profit.”

            Prepare the accompanying Problems in chapter 4.

 

            Miles, Berens & Weiss, “Decisions About Equity,” pages 428-430.

 

            Poorvu, 503 Cricket Road -- See Appendix for your assignment. 

 

            Miles, Berens & Weiss, Case Study: “Museum Towers,” begins at page 8 and continues               throughout the book.

 

 

 

October 10      Preparing a construction/development budget (Sources and Uses Budget)

                        Preparing a Discounted Cash Flow Analysis (Operating Pro Forma)

                        Preparation for Case # 1                   

 

                        Meet in the LeFrak Computer Room with Andy Frank

 

            Miles, Berens & Weiss, chapters 7, 8 & 9 (history of real estate development in the United           States).

 

Case # 1 will be distributed at the end of class. Your write-ups are to be given to your instructor at the beginning of class on October 24.

 

 

 

October 17      Federal Income Tax Laws     

           

            Falk, chapter 5,  “Some Basic Principles of  Federal Income Taxation As It Affects Real Estate.”

            Prepare the accompanying Problems in chapter 5.

 

                       

 

October 24      Financing for Low-Income Tenants Through Low Income Housing Tax Credits

                        Single Family Development and Developers

 

            Falk, chapter 6,  “Low Income Housing Tax Credits.”                                        

            Prepare the accompanying Problems in chapter 6.

 

            Miles, Berens & Weiss, chapter 2.

 

            Poorvu, Grosvenor Park -- See Appendix for your assignment.                

 

            Joint Center for Housing Studies, The Evolving Home Building Industry & Implications for            Consumers, 2006, on line (www.jchs.harvard.edu).

           

            Jon Gertner, “Chasing Ground,” New York Times Sunday Magazine, October 16, 2005 (profile of             Toll Brothers, perhaps America’s largest single-family developer), in your Course Packet.

 

            Your write-ups of Case # 1 are due at the beginning of this class.

 

 

 

October 31      Equity Syndication

                       

            Selections from Prospectus,  Boston Capital Tax Credit Fund L.P., in your Course Packet.           

 

            Miles, Berens & Weiss, chapters 19 & 20.

 

Guests: Jeff Lesk & Ken Hance, law partners

            Nixon Peabody LLP

            Washington, D.C.

 

Your take-home mid-term examination will be handed out at the end of class, and is to be handed to your instructor at the beginning of class on November 7.

 

           

 

November 7    Preparation for Case # 2 -- Andy Frank; 

                        Public-Private Partnerships;

                        Cost-Benefit Analysis                                                                       

 

            Mid-term exams are due at the beginning of class.

            Meet in the LeFrak Computer Room with Andy Frank

 

            Your Case # 1 write-ups will be returned and discussed.

 

            Miles, Berens & Weiss, chapters 13 & 14.

 

Your assignments for Case # 2 will be handed out in this class and are due at the beginning of class on November 28.

November 14  Historic Preservation

                        Rehabilitation of pre-1936 Non-Historic Buildings (excluding housing)

 

“Financing Commercial Real Estate Development: The Role of Historic Preservation -- Issues for Discussion,” in your Course Packet.            

 

“Adaptive Use/Apartment Conversions”” and “Rehabilitation and Repositioning”, from Urban Land Institute, Multifamily Housing Development Handbook, Urban Land Institute 2000, pp.217-222, in the Course Packet.         

 

            Secretary of the Interior, “Standards for Rehabilitation” (revised 1990), in Course Packet.

 

            National Park Service, “Federal Historic Preservation Tax Incentives”, in your Course Packet.. 

 

National Park Service, National Register of Historic Places, “Listing a Property -- What is the Process?” in your Course Packet.

 

National Park Service, “Federal Tax Incentives for Rehabilitating Historic Buildings,” in your Course Packet.

 

National Park Service, Technical Preservation Services, “Historic Preservation Easements -- A Historic Preservation Tool with Federal Tax Benefits,” in your Course Packet.

 

Harry K. Schwartz, “State Tax Credits for Historic Preservation,” Center for Preservation Leadership, November/December 2005, in your Course Packet.

 

Baltimore City Commission for Historical and Architectural Preservation, “Baltimore City’s Tax Credit for Historic Restorations and Rehabilitations” (1996), in your Course Packet. 

 

Baltimore City Commission for Historical and Architectural Preservation, “Historic Preservation Guidelines,” in your Course Packet.

 

William C. Shopsin, Restoring Old Buildings for Contemporary Uses, Whitney Library of Design, Watson-Guptill Publications, 1986, at pages 57-63, 104, in Course Packet.

 

Guest:   Harry Schwartz,                                                                                               

            Former Assistant Secretary for Legislative Affairs, U.S. Department of Housing and Urban                      Development;

            Former Director for Policy Analysis, National Trust for Historic Preservation;

            Former law partner, Lane & Edson, P.C., Washington, D.C.

 

 

November 21  Housing Policy in the United States: Programs and Issues.

                        Strategies for Alleviating the Shortage of Affordable Housing

                       

Falk, chapter 7,  “Housing Policy in the United States, Past and Present.”

 

Falk, chapter 3B, “Debt Financing Through HUD Mortgage Insurance for Moderate Income Families.”    

 

Elizabeth Renuart, “An Overview of the Predatory Lending Process,” Housing Policy Debate, Vol. 15, Issue 3 (2004)(pp. 467-497), on line (www.fanniemaefoundation.org/programs/hpd.shtml).

 

Susan J. Popkin, Mary K. Cunningham & Martha Burt, “Public Housing Transformation and the Hard-to-House,” Housing Policy Debate, vol. 16, issue 1 (2005) (pp. 1-21), on line (www.fanniemaefoundation.org/programs/hpd.shtml).

 

            Miles, Berens & Weiss, “Definition of Affordable Housing” & “The Working Definition of Low    Income,” at pp. 293-296 & 303.

 

“Housing Challenges,” Joint Center for Housing Studies of Harvard University, The State of the Nation’s Housing 2006, pp. 25-20, on line (www.jchs.harvard.edu)..

 

David Buchholz, “‘Mobile’ Homes No More: Policy Innovation in Manufactured Housing” and Elizabeth Hager, “Innovations in Manufactured Home Parks: Providing Affordable Homes for Working Families and Retirees,”  Housing Facts & Findings, vol. 7, no. 4 (FannieMae Foundation, 2005)(pp. 1, 3, 6-7, 2), on line (www.fanniemaefoundation.org/programs/hff.shtml)..

 

Andy Kegley, “Lessons Learned,” from Housing Assistance Council, Moving Home: Manufactured Housing in Rural America, December 2005 (p. 34), in your Course Packet.

 

Arthur C. Nelson, “Top Ten State and Local Strategies to Increase Affordable Housing Supply,” Housing Facts & Findings, vol. 5, no. 1 (FannieMae Foundation, 2003), on line (www.fanniemaefoundation.org/programs/hff.shtml)..

 

Paul G. Lewis, “Can State Review of Local Planning Increase Housing Production?” Housing Policy Debate, vol. 16, issue 2 (2005)(pp. 173-196), on line (www.fanniemaefoundation.org/programs/hpd.shtml).

.

Recommended1:            Bruce Katz, “Housing and the 2008 Election,” Presentation at the 2006 NAHRO Legislative Conference, March 13, 2006, in your Course Packet.

Remaining chapters of Joint Center for Housing Studies of Harvard University, The State of the Nation’s Housing 2006, pp. 25-20, on line (www.jchs.harvard.edu)..

 

 

November 28  Field Trip to “Tivoli Square,” a product of a development team led by Horning Brothers, located at 14th and Park Road, N.W., Washington, D.C.

 

            Write-ups of Case # 2 are to be given to your instructor at the beginning of class.

 

Be prepared to be at Tivoli Square by 2:00 pm, arriving back on campus by 6:30.  Details will be provided in class well before November 28.

 

            Readings on the History of Tivoli Square in your Course Packet.  Your Course Packet contains articles, press releases and web site papers on the background and approval process for Tivoli Square. Each reading displays a number on the upper right-hand side of its first page. Additional articles will be distributed in class on November 21, which display the missing numbers. You should read all these materials in the order of the numbers (beginning with number 1 on through number 31) so you might better understand the considerable obstacles that had to be overcome to gain the necessary government approvals and financial assistance.

 

 

 

December 5    Commercial Real Estate  

                        Appraising Real Estate

                       

            Lipman Frizzell & Mitchell, Appraisal of: 209 Philadelphia Avenue, Ocean City, Maryland             21842  (1993), in Course Packet.

 

Lipman Frizzell & Mitchell, Appraisal of The Woods Apartments (March 15, 1998) in Course Packet.

 

Poorvu, Lakeside Center – You will be given your assignment in class on November 2.

 

            Poorvu, The Schneider Building – You will be given your assignment in class on November 2.

                                                           

Guest:  Richard Lane 

            Principal

            West, Lane & Schlager, ONCOR International

            Washington, D.C.         

 

 

 

December 12  Property, Asset and Portfolio Management

 

            Miles, Berens & Weiss, chapters 21 & 22.

 

            Poorvu, The JKJ Pension Fund, plus pp. 231-232 for background on the JKJ Pension Fund – See   Appendix for your assignment.

           

            Poorvu, Twinbrook Metro, plus supplemental reading. Read this case study for information only.

 

            Poorvu, The Domik Project (Moscow, Russian Federation) -- See Appendix for your assignment.

 

 

 

December 19  Final Examination

 

 

Happy Holidays!                    


                1  Two important books on U.S. housing policy have been published in early 2006 as follows: Alex F. Schwartz, Housing Policy in the United States: An Introduction, Routledge 2006 (ISBN No. 0415950317), and Rachael Bratt, Michael Stone & Chester Hartman, A Right to Housing: Foundation for a New Social Agenda, Temple University Press 2006 (ISBN No. 1592134327).