Real Estate Capital Market Analysis - Carey Business School



Real Estate Capital Market Analysis2 CreditsBU 242.720.XX[NOTE: Each section must have a separate syllabus.][Day & Time][Start & End Dates][Semester / ex: Fall 2019][Location / ex: Harbor East]Instructor[Full Name]Contact Information[Email Address][Phone Number, ###- ###-#### (Optional)]Office Hours[Specify the day and time of the 2 hours that will be dedicated to office hours each week. For evening classes, faculty may wish to hold their office hours by phone or email. While faculty are permitted to state “and by appointment,” office hours should not be held exclusively by appointment.]Required Texts & Learning Materials(C): Real Estate Finance: Theory and Practice, 7th edition, OnCourse Learning, Terrence M. Clauretie and G. Stacy Sirmans, 2014. This book surveys the basic issues in real estate finance, as such, it serves as a very good reference material for this class. My lectures will not follow the book very closely and I will rely heavily on my hand-outs. Consequently, examination questions will not come directly from the textbook. However, I still suggest that students purchase the textbook because it provides very good background information for class discussions. This textbook is also used for the Real Estate and Infrastructure Finance class.(O): IFE Group, An Actuarial Review of the Federal Housing Administration Mutual Mortgage Insurance Fund Forward Loans for Fiscal Year 2016. This is a reference text and can be directly downloaded from the website of the U.S. Department of Housing and Urban Development:(R): A package of papers that can be downloaded from Blackboard:R1: IFE Group, “Evolution of the U.S. Housing Finance System,” HUD White Paper Series, 2006R2: IFE Group, “Mortgage Securitization – Lessons for Emerging Markets,” HUD White Paper Series, 2007.R3: IFE Group, Appendix G from Actuarial Review of the Federal Housing Administration Mutual Mortgage Insurance Fund Forward Loans for Fiscal Year 2014.: IFE Group, Appendix A from An Actuarial Review of the Federal Housing Administration Mutual Mortgage Insurance Fund for Fiscal Year 2008. Ambrose, Henry Cassidy, and Tyler Yang, “The Measurement and Management of Mortgage Credit Risk in the United States: Implications for Emerging Mortgage Markets,” HUD White Paper Series, 2007.R6:Tyler Yang and Jessie Zhang, “Mortgage Defaults and Risk-Based Capital: Post-Global Financial Crisis Development and Implications to Emerging Markets,” Chapter 10 of The Global Financial Crisis and Housing – A New Policy Paradigm, Edited by Susan Wachter, Man Cho, and Moon Joong Tcha, KDI Series in Economic Policy and Development, 2014.(N):A package of lecture notes that can be downloaded from Blackboard. This package contains a rough draft of my lecture notes. I will follow the notes very closely in my lectures. Individual lecture notes will be posted on Blackboard at least two weeks before we cover the specific topics.(F):A package of Excel files:This package contains the spreadsheet programs I used to derive some of the tables in my lecture notes for this class. Those files are extremely helpful when a student wants to know the formula behind each calculation. I believe that a detailed study of the files will help students understand the course materials. Individual Excel files will be also posted on Blackboard at least two weeks before we cover them in the class.Course DescriptionThis course examines selected topics and issues related to real estate capital markets. Special emphasis will be placed on mortgage backed securities (MBSs) and real estate investment trusts (REITs). This class will be conducted using a lecture format. While lectures will follow the table of contents of the textbook rather closely, quite often supplemental readings are required. Students are assumed to have some knowledge of real estate finance. Before taking this class, it is important that students have a clear understanding of the design of mortgages and knowledge of how to use spreadsheets to solve mortgage related problems. Knowing how to use a calculator to solve present value problems is not sufficient for tackling the course materials of this class. This course was previously titled Real Estate Finance II.Prerequisite(s)BU.234.610 OR BU.231.620Learning ObjectivesBy the end of this course, students will be able to:Understand the primary mortgage market and why there is a need for secondary prehend the objectives and processes for designing, implementing, and servicing mortgage and asset backed securities.Familiar with the tools used by the capital market for pricing and analyzing risks of MBSs.Analyze a structured transaction deal to see if it meets the investment objectives of your clients.Know the regulatory environment and trend of the securitization market.To view the complete list of the Carey Business School’s general learning goals and objectives, visit the Carey website.AttendanceAttendance and class participation are part of each student’s course grade. Students are expected to attend all scheduled class sessions. Failure to attend class will result in an inability to achieve the objectives of the course. Regular attendance and active participation are required for students to successfully complete the course.AssignmentsYour final grade will be weighted as follows:AssignmentWeightClass Participation10%Midterm Exam40%Final Exam50%Total100%The final class grade will be based on a relative frequency distribution (percentile ranking) of the total points accumulated over the entire semester. This approach implies that your final grade will be determined by the relative performance of the students in the class, as well as the overall performance of the entire class. While I normally do not take roll, class attendance is mandatory. Each student should read the assigned materials and give careful thought to background information prior to each class session. Having done so will not only facilitate class discussions, it will also lighten your workload because the lectures are much easier to follow after you have digested the reading materials.There will be one mid-term exam and one final exam. The 2-hour midterm exam will be held during regular class hours and the 2-hour final exam will be comprehensive. The exam format will consist of two components: conceptual questions and computational problems. The computational problems may require intensive calculations and students are expected to use spreadsheets to solve the problems (see Appendix A for sample questions). The evaluation of class participation consists of two components: class discussions and homework. There are no specific rules on how to score points for the class discussions. A student's grade in this category is solely based on the instructor's objective judgement. However, a meaningful question to the instructor as well as the ability and willingness to answer the instructor's questions will definitely improve your performance. The grade of the homework will be counted as a part of Class Participation. Class participation will play an important role in your final grade if you are at the borderline between two grades. GradingThe grade of A is reserved for those who demonstrate extraordinarily excellent performance as determined by the instructor. The grade of A- is awarded only for excellent performance. The grades of B+ and B are awarded for good performance. The grades of B-, C+, C, and C- are awarded for adequate but substandard performance.?The grades of D+, D, and D- are not awarded at the graduate level (undergraduate only). The grade of F indicates the student’s failure to satisfactorily complete the course work.Please note that for Core and Foundation courses, a maximum of 25% of students may be awarded an A or A-; the grade point average of the class should not exceed 3.3. For Elective courses, a maximum of 35% of students may be awarded an A or A-; the grade point average of the class should not exceed 3.4. (For classes with 15 students or fewer, the class GPA cap is waived.)Tentative Course CalendarInstructors reserve the right to alter course content and/or adjust the pace to accommodate class progress. Students are responsible for keeping up with all adjustments to the course calendar. WeekContentReading1Evolution of the U.S. Primary Mortgage MarketChapters 4, 5, R12Asset Securitization ProcessUncertain Future Economy Modelling Chapters 10, 6, R2, R33Prepayment Risk Modelling Chapter 11, R44(Midterm Exam)Measurement and Management of Credit RiskChapters 12, 13, R55Valuation of Residential Mortgage SecuritiesChapters 11, 146Valuation of Other Real Estate Backed SecuritiesChapters 11, 197Crisis and RegulationsR6.8(Final Exam)Appendix A: Sample QuestionsIn-class exam:What are the three main sources of risk when investing in a RMBS (5 points)? How does prepayment affect the value of a MBS (5 points)?Please explain what is “over-collateralization” using an example (5 points). Why does over-collateralization exist and what benefits does it offer in the securitization process (5 points)?State and explain the two theories of default (2 points). Which theory makes more "intuitive" sense (3 points)?Homework:Please re-construct the CMO example ($106,000,000 pool balance with a 10.25% coupon rate) we discussed in class. In addition, please change the PSA prepayment rate from the 100% we used in class to 175%. You are required to provide a table and to calculate the IRR for each tranche of the mortgage pool: Tranche A, Tranche B, Tranche C, Tranche Z, and the residual position. Please use the correct PSA rates (20 points).Please re-construct the MBS pricing example we discussed in class to conduct a sensitivity analysis of the MBS value under different interest rate environment. You are required to provide a table of the values of the MBS when the current market interest rate is 4%, 4.5%, 5%….up to 10.0%. Compute the duration and convexity of the MBS at each market interest rate. (20 points).Carey Business School Policies and General InformationBlackboard SiteA Blackboard course site is set up for this course. Each student is expected to check the site throughout the semester as Blackboard will be the primary venue for outside classroom communications between the instructors and the students. Students can access the course site at . Support for Blackboard is available at 1-866-669-6138.Disability ServicesStudents with disabilities who require accommodations for this course should be registered with Disability Support Services and provide a copy of their accommodation letter as soon as possible. If you have not yet registered with Disability Support Services, please contact them to discuss your needs and begin the registration process (carey.disability@jhu.edu or 410-234-9243). For more information, please visit the Disability Support Services webpage.Academic Ethics PolicyCarey expects graduates to be innovative business leaders and exemplary global citizens. The Carey community believes that honesty, integrity, and community responsibility are qualities inherent in an exemplary citizen. The objective of the Academic Ethics Policy (AEP) is to create an environment of trust and respect among all members of the Carey academic community and hold Carey students accountable to the highest standards of academic integrity and excellence.It is the responsibility of every Carey student, faculty member, and staff member to familiarize themselves with the AEP and its procedures. Failure to become acquainted with this information will not excuse any student, faculty, or staff from the responsibility to abide by the AEP. Please contact the Student Services office if you have any questions. For the full policy, please visit the Academic Ethics Policy webpage.Student Conduct CodeThe fundamental purpose of the Johns Hopkins University’s regulation of student conduct is to promote and to protect the health, safety, welfare, property, and rights of all members of the University community as well as to promote the orderly operation of the University and to safeguard its property and facilities. As members of the University community, students accept certain responsibilities which support the educational mission and create an environment in which all students are afforded the same opportunity to succeed academically. Please contact the Student Services office if you have any questions. For the full policy, please visit the Student Conduct Code webpage.Student Success CenterThe Student Success Center offers free online and in-person one-on-one and group coaching in writing, presenting, and quantitative courses. For more information on these services and others, or to book an appointment, please visit the Student Success Center website.Other Important Policies and ServicesStudents are encouraged to consult the Student Handbook and Academic Catalog and Student Services and Resources for information regarding other policies and services.Copyright StatementUnless explicitly allowed by the instructor, course materials, class discussions, and examinations are created for and expected to be used by class participants only.?The recording and rebroadcasting of such material, by any means, is forbidden. Violations are subject to sanctions under the Academic Ethics Policy. ................
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