UPP 533 Development Finance Analysis Fall 2009 Thursday 6 00 9 00pm Art Design Hall 2232 Urban Planning and Policy Program University of Illinois at Chicago Instructor Office Office hours Phil Ashton 231 CUPPA Hall Tuesdays 3 5pm Phone E mail 312 413 7599 pashton uic edu Page 1 Course Description Objectives This course will acquaint students with the key financial principles of real estate development particularly those related to the financing of affordable housing and neighborhood retail commercial development After introducing important financing concepts and tools e g mortgage mechanics net present value students will learn how to develop read use and troubleshoot development budgets and operating pro forma The course will then examine different sources of financing paying particular attention to the use of Low Income Housing Tax Credits Tax Increment Financing and other gap funding sources for community economic development Through readings discussion case studies and projects you will familiarize yourself with the changing landscape of development finance and learn how to make informed judgments about issues that will make or break real estate projects By the end of the semester students in this course should have accomplished the following Developed a grounding in the rationale and structure of the real estate development process particularly as it applies to affordable housing and community economic development Extended those concepts by introducing and practicing the basic techniques of financial analysis as applied to urban real estate Broadened those competencies through practice and group work that explores current strategies in development finance from both a quantitative and non quantitative perspective Requirements ASSIGNMENT 1 TAKE HOME EXERCISES SHORT DESCRIPTION These short homework assignments will help students to hone their research and analytical skills Exercises will be collected at the beginning of the class period in which they are due Grade 30 10 and 20 DUE 9 24 11 5 2 MID TERM EXAM An in class exam that will test student abilities on basic financial concepts and techniques 20 10 22 3 FINAL PROJECT Students will work in small teams and be provided with information and materials regarding particular community development projects in Chicago 50 12 3 Each team will conduct a financial analysis of the project and at the end of the semester will hand in a redevelopment plan market analysis development and operating pro forma The group will be responsible for a write up of the project and the entire team will present its final report to the class in a mock public hearing Required Materials It is essential that all reading be completed in advance of each class All readings may found online at the course Blackboard site Students should purchase a Hewlett Packard 12 C financial calculator which is the best widelyavailable calculator for real estate financial analysis It is available at Radio Shack other stores where consumer electronic goods are sold and on line at secondary markets such as Ebay The calculator needs to be purchased by the end of January Other models are also available students purchasing alternative models should be sure to buy one that can calculate amortization constant mortgage payments net present values and internal rates of return Students should bring their calculators to all class meetings Students are expected to be proficient Excel users as class time will not be spent on the basics e g inserting simple addition subtraction multiplication formulae in cells labeling columns and rows Students without significant Excel experience should consider registering for a free workshop through ACCC http www uic edu depts accc workshops register html Course Outline Part One The Development Process Week 1 August 27 Introduction to the Course Week 2 September 3 Developers the Development Process Risk Readings Miles Mike E Haney Richard L and Gayle Berens 1995 Real Estate Development Principles and Practice Washington DC Urban Land Institute Chapter 2 Developers and their partners pp 15 30 Miles Mike E Haney Richard L and Gayle Berens 1995 Real Estate Development Principles and Practice Washington DC Urban Land Institute Chapter 4 Real estate and the financial markets pp 53 64 Carr James H 1999 Community capital and markets A new paradigm for community reinvestment NeighborWorks Journal Summer 20 23 Beitel Karl 2008 The subprime debacle Monthly Review 60 1 27 44 Week 3 September 10 Real Estate Market Analysis Readings Lefenfeld Bob 2001 Market analysis basics Elements of a good study Multifamily Trends Summer 21 23 50 51 Brueggeman William 2002 Single family housing Demographics bubbles and changing demand Real Estate Finance 19 2 5 12 Bruegmann William Fisher Jeffrey and Stone 1988 Real Estate Finance New York NY McGraw Hill Chapter 14 Valuation of income properties pp 397 410 Miller William Jaeger John Lissner Gail and Eugene Stunard 2000 Chicago s Residential Resurgence Urban Land September 1 8 Appraisal Research Counselors 2009 Office Market Analysis City of Chicago Week 4 September 17 Development Budgets Readings Community Development Research Center 1996 Glossary of development terms In Bank Ability A Practical Guide to Real Estate Financing for Nonprofit Developers New York NY Robert J Milano Graduate School of Management and Urban Policy New School for Social Research Hecht Bennett 2006 Developing Affordable Housing New York NY John Wiley Chapter 4 Project feasibility and total development costs pp 35 68 Hecht Bennett 2006 Developing Affordable Housing New York NY John Wiley Chapter 5 Determining Projected Income and Expenses pp 69 84 Part Two Debt Financing Real Estate Investment Week 5 September 24 Underwriting Feasibility Assignment 1 Due in Class Readings Miles Mike E Haney Richard L and Gayle Berens 1995 Real Estate Development Principles and Practice Washington DC Urban Land Institute Chapter 6 The Successful Loan Application pp 83 100 Hecht Bennett 2006 Developing Affordable Housing New York NY John Wiley Chapter 6 Raising Capital to Meet Total Development Costs pp 87 107 Hecht Bennett 2006 Developing Affordable Housing New York NY John Wiley Chapter 11 Enhancing the Feasibility of an Affordable Housing Project pp 317 360 Week 6 October 1 Mortgage Mechanics Readings Miles Mike E Haney Richard L and Gayle Berens 1995 Real Estate Development Principles and Practice Washington DC Urban Land Institute Chapter 5 Discounted Cash Flow