Fundamentals of Real Estate Finance: June 16-17

Course Overview

The objective of this two-day seminar is to introduce the basic concepts and tools used by real estate developers, investors, lenders, architects, and public sector officials to analyze the financial feasibility of real estate developments. Specifically, the course integrates financial theory and taxation principles with conventional real estate practices. The seminar has been designed to provide those without a financial background with the "nuts and bolts" training they need to effectively communicate with real estate professionals. Although no prior background in finance is required, reading materials and case studies will be sent in advance for attendees to prepare. Attendees are strongly encouraged to bring a financial calculator.

Day 1: Develop Property Cash Flows; Calculate Investment Returns

• Prepare the development budget and property income statements; forecast Net Operating Income (NOI); project net proceeds from sale. Apply the analytic techniques developed above to quantify the value of zoning changes for developers, landowners and municipalities.
• Determine the required amount of equity investment. Understand the inputs, calculation and constraints associated with static and dynamic measures of investments returns. Properly apply the time value of money concept to the relevant property cash flows.

Day 2: Evaluate Financing Structures and Impact of Taxation

• Identify the impact on investment returns and risk of introducing permanent debt into the capital structure of the investment.  Calculate lender yields and effective borrowing costs. Understand how much money a lender will lend on a project and why.

• Properly calculate the accounting fiction known as taxable income and taxable gain-on-sale; identify expected annual tax liabilities or savings to develop projections of after-tax cash flows and after-tax investment returns.

Learning Objectives and Outcomes

• Demonstrate communication skills which are effective with real estate professionals.
• Describe basic concepts and tools used by real estate professionals to analyze the financial feasibility of real estate developments.
• Give examples of financial theories and taxation principals as well as conventional real estate practices.

Instructor Bio

W. Tod McGrath is a finance instructor in MIT's Center for Real Estate. He has taught both real estate finance and spreadsheet analysis at MIT, and has analyzed numerous real estate transactions for developers, tenants, and institutional investors.  He is President of AdvisoRE, a real estate consulting firm.