Course description

Real Estate Finance

Introduction

Since everybody needs a place to live, everybody is affected by real estate and its measures of valuation. More than 80% of Norwegian households and more than 65% of US households own their house, and, as a result, housing is typically the largest asset for the families. The main focus of the Real Estate Finance course is the valuation and financing of different types of real estate properties ranging from residential (private) homes to commercial, income-generating investments, and corporate real estate. The secondary focus is on discussion of risk. Only about 30% of Norwegian retirement age households have mortgage balances below 60% of the purchase price. That means that real estate risk is one of the dominant risks, if not the dominant financial risk, of households, both young and old. While analysis of residential properties typically revolves around the cost of financing (borrowing costs), valuation of commercial real estate also depends on the income-generating ability of the assets in question. In this context, taxes become an important determinant of the borrowing decision.

Course content

  1. Introduction to real estate economics
  2. Financial mathematics of real estate
  3. Measuring returns and investment performance
  4. Real estate valuation and investment analysis at the micro-level
  5. Real estate investment analysis of risk and the use of leverage
  6. Real estate development, land value and use of real-options
  7. Finding optimal holding-period for commercial real estate properties

Learning outcome knowledge

Acquired knowledge:

Upon completion of the course, students are required to gain knowledge of:

  • Calculation of present values and internal rates of return of various cash flow streams
  • Valuation of fixed rate and floating rate debt
  • Performance of break-even analysis of costs
  • Valuation of commercial, rent-generating, real estate properties and of their financing
  • Disposition decisions for commercial real estate
  • Basic portfolio analysis and risk adjusted rates of return for commercial real estate

Exam organisation

  • Written exam: 100%