Module Outline


Overview - A Value Approach

Although the subject of real estate can be studied from many perspectives, we have adopted the value perspective as our unifying theme. Why? Because value is central to virtually all real estate decision making including whether and how to lease, buy, or mortgage a property acquisition; whether to renovate, refinance, demolish, or expand a property; and when and how to divest (sell, trade, or abandon) a property.... The key to making sound investment decisions is to understand how property values are created, maintained, increased, or destroyed.”

- Ling & Archer (2010)


This module covers issues related to direct commercial real estate investment and asset management. Participants will learn a “real” world perspective of how to manage the real estate investment and asset management process more effectively and efficiently adopting a value approach, this module is about making informed decisions concerning real estate. Virtually all decisions about the acquisition, disposition, or improvement of real estate depend on some assessment of the real estate’s value. These decisions involve comparing the resulting value of an action to its immediate cost. This module will cover 4 broad areas, namely, Fundamentasl of Real Estate Investment Analysis; Acquisition Process & Structure; Asset Management; Development.

I. Fundamentals & Investment Analysis

The course begins with an overview of the importance of real estate as an asset class. Topics to be covered include: the relation between real estate values and risk; determinates of required rates of return for investment decisions; analysis and forecasting of the primary economic drivers of real estate rental rates and market values; the dynamic relationship among space (rental) markets, property markets, and capital markets.

The pro-forma cash flow analysis forms the backbone of the preliminary underwriting of the investment opportunity. Topics to be covered include: develop a basic commercial real estate pro forma; the starting point for implementing a discounted cash flow analysis of real estate investment decisions; how basic ratios and rules of thumb are typically used in the valuation/decision making process; use of net present value and the internal rate of return in a decision making context; expanded discussion of commercial real estate cash flow pro formas, risk analysis, and discount rates.


II. Acquisition Process & Structuring

This first step in the investment process is finding the right potential investment. Real estate deals have also become more challenging and sophisticated in terms of their size, scope and complexity. Nowadays, structuring the right deal is as important as finding the right property. Topics to be covered include: acquisition process; deal sourcing; negotiation and due diligence; regional investment opportunities; deal structuring; ownership and tax efficient vehicles.


III. Asset Management

Real estate investment is no longer seen as a passive game where a property is bought, held passively over a passage of time, and then sold for a profit. Property and asset managers play a critical role to help unlock and create value through asset repositioning and enhancement strategies. Topics covered include: pro-active asset management; strategic asset plan; yield maximisation & asset enhancement strategy; marketing, leasing & property management; refurbishment and capex plan; hold-sell analysis; redevelopment & disposition decisions; retail management and tenant mix strategies.


IV. Development

Real estate development is a highly creative but complex process which entails the orchestration of finance, materials, labor and expertise by many actors within a wider, social, economic and political environment. At its best, the whole process is synergistic - that is the ultimate combination of resources has a greater value than the sum of its individual parts. Topics covered include real estate development process; acquiring sites, value aspects of good design and strategic real estate marketing.

Overview

Real estate investment and ownership generally require sizeable amount of money, often beyond the resources of the individual or firm undertaking the investment. Hence, most investors are in practice constrained by the huge capital outlay required. Financing is thus an important component of investing in real estate. The capital typically comes from two sources: a lender that advances borrowed funds in exchange for future payments and an equity investor who provides the remainder of the capital. Lenders are primarily concerned about two loan risks: Loss of loan principal & non-payment of debt service. Equity investors, on the other hand, are motivated by cash flow, value appreciation, and the benefits of tax shelter.

Blending theory with application to real world problems, this module covers issues related to fund raising for real estate investment. In the first part, alternative ways to finance real estate investment via the traditional as well as innovative routes such as project, corporate and structured real estate financing will be covered. This is followed by fund raising via the equity route, focusing primarily on joint-ventures, private funds, and public listed REITs.

In total, there will be nine sessions and one workshop conducted by distinguished professors and practitioners in the real estate industry focusing on the theme of real estate financing and securitisation. A distinguishing feature of the GCREF is the appointment of a Module Coordinator who acts as a facilitator of learning to ensure rigour, continuity and synergy so that all the sessions will fit together.


To minimize risk, investment theory asserts that investors need to diversify. The four quadrant model of real estate investment in particular offers a framework for investment managers to take positions across real estate public and private, debt and equity markets. Focusing on indirect real estate as an investment asset class, this module is structured around the goal of a portfolio manager, which is to assemble various securities into portfolios that address investor needs (which are often defined in terms of risk) and then to manage those portfolios so as to maximize returns for investment risk undertaken. Portfolio management essentially consists of three major activities: asset allocation, shifts in weighting across major asset classes, and security selection within asset classes.

Compared with the traditional method of investing directly in real estate, real estate‐backed securities offer investors an indirect route to take equity and debt interests in real estate. Real estate investment trusts (REITs) in particular allow investors to participate in a portfolio of properties that may be geographically diversified and professionally managed.

Blending theory with application to real world problems and illustrated using case studies, the topics covered in this module is divided into three broad areas, namely (1) the analysis and pricing of real estate equities and debt instruments, (2) strategic portfolio allocation to diversify risk and tactical allocation to achieve superior returns, and (3) risk management techniques for real estate investors, including latest insights on opportunities and challenges in a securitized and globalized real estate market.

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