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ELE 3736 Real Estate Finance

ELE 3736 Real Estate Finance

Course code: 
ELE 3736
Department: 
Finance
Credits: 
7.5
Course coordinator: 
Knut Sagmo
Product category: 
Bachelor
Portfolio: 
Bachelor - Electives
Semester: 
2019 Autumn
Active status: 
Active
Teaching language: 
English
Course type: 
One semester
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.

Learning outcomes - 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
Learning outcomes - Skills

Students having completed the course are required to master tasks such as to:

  • Calculate borrowing costs of fixed-rate mortgages (FRMs) and adjustable-rate mortgages (ARMs)
  • Estimate required rates of return on various types of real-estate investments
  • Structure the financing suited to the various types of real-estate investments
  • Demonstrate how real estate investment may accommodate and/or modify exposure to risk
  • Analyze optimal holding-period for commercial real estate.
General Competence

Upon completion of the course, students are expected to demonstrate attitudes characteristic of an uncompromising integrity towards the quality of analysis performed, as well as information presented to clients and authorities.

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
Teaching and learning activities

The course consists of 45 lecture hours including instructor-guided problem solving in class.

During lecture series, three work assignments, posted on Its Learning, will be given. Three Home Assignments are also given during the lecture series. Further administrative details are provided in class.

Excel spreadsheets and basic statistical software are used in the course.

Software tools
Software defined under the section "Teaching and learning activities".
Additional information

For electives re-sit is normally offered at the next scheduled course. If an elective is discontinued or is not initiated in the semester it is offered, re-sit will be offered in the electives ordinary semester.

Qualifications

Higher Education Entrance Qualification.

Required prerequisite knowledge

BØK 3411 Finance and Managerial Accounting I, BØK 3421 Finance and Managerial Accounting II, BØK 1113 Managerial Accounting or EXC 3442 Managerial Accounting,

BØK 1121 Finance or EXC 3451 Financial Reporting and Analysis or equivalent courses.

Exam categoryWeightInvigilationDurationSupport materialsGroupingComment exam
Exam category:
Submission
Form of assessment:
Written submission
Exam code:
ELE37361
Grading scale:
ECTS
Grading rules:
Internal and external examiner
Resit:
Examination when next scheduled course
100Yes3 Hour(s)
  • BI-approved exam calculator
  • Simple calculator
  • Bilingual dictionary
  • Interest table
Individual
Exams:
Exam category:Submission
Form of assessment:Written submission
Weight:100
Invigilation:Yes
Grouping (size):Individual
Support materials:
  • BI-approved exam calculator
  • Simple calculator
  • Bilingual dictionary
  • Interest table
Duration:3 Hour(s)
Comment:
Exam code: ELE37361
Grading scale:ECTS
Resit:Examination when next scheduled course
Type of Assessment: 
Ordinary examination
Total weight: 
100
Workload activityDurationType of durationComment student effort
Teaching36Hour(s)
Review of assignments in plenary9Hour(s)Problem-solving in class
Prepare for teaching120Hour(s)
Group work / Assignments10Hour(s)Work assignments
Examination25Hour(s)Final exam preparation
Expected student effort:
Workload activity:Teaching
Duration:36 Hour(s)
Comment:
Workload activity:Review of assignments in plenary
Duration:9 Hour(s)
Comment:Problem-solving in class
Workload activity:Prepare for teaching
Duration:120 Hour(s)
Comment:
Workload activity:Group work / Assignments
Duration:10 Hour(s)
Comment:Work assignments
Workload activity:Examination
Duration:25 Hour(s)
Comment:Final exam preparation
Sum workload: 
200

A course of 1 ECTS credit corresponds to a workload of 26-30 hours. Therefore a course of 7,5 ECTS credit corresponds to a workload of at least 200 hours.