Professor Todd Sinai Wharton Real Estate Investments, Fall 2024

University of Pennsylvania
The Wharton School

Real Estate Finance: Investment and Analysis

Fall 2024, TR 1:45-3:15
REAL/FNCE 2090
Updated August 26, 2024

Professor Todd Sinai Office Hours: Thursdays, 3:30-4:30 p.m.

429 Vance Hall in 429 Vance Hall or by appointment
email: [email protected]

Course Objectives:
1) To expose you to the terms, issues, and topics in commercial real estate;
2) To give you the basic skills and intuition you need to begin to evaluate a variety of real estate
investments.

Real estate is a multi-faceted field, encompassing both an operating industry and a broad
category of investments. It has its own institutional features, jargon, and investment structures.
As the survey course in the Real Estate Department, this class aims to provide a broad overview
of the real estate field. Higher-level classes in the Real Estate Department examine in more
detail many of the topics from this class.

The presumption in this class is that you have no prior real estate experience, and no pre-existing
knowledge of the real estate industry is necessary to do well in this class. However, this class
does rely on a wide array of fundamental finance concepts, hence Finance 1000 is a prerequisite
for enrollment.

Course Materials:
Readings: Most of the readings are chapters from the required textbook, Real Estate Finance
and Investments, 5.2 Edition, by Linneman and Kirsch. Used copies are okay – the
syllabus lists page numbers for the 5.2 edition but it’s easy to figure out the conversion to
other editions. The Linneman text will serve you well through your career. However, if
you do not wish to purchase a copy, we have made a number of excerpts available on
Canvas under “Course Materials@Penn Libraries”. Additionally, several copies of the
textbook are on reserve at Lippincott.

Other readings are available on Canvas through the Study.net link or in the
“Files>Readings” folder.

Required readings are denoted on the syllabus and students are expected to cover them
before class. Many of these readings are necessary to complete problem set assignments
Professor Todd Sinai Wharton Real Estate Investments, Fall 2024

that are due before class (see below). Other readings are optional.

For students interested in learning more, or having a different explanation of the same
material, a good supplemental text is Commercial Real Estate Analysis and Investments
by Geltner, Miller, Clayton and Eicholtz. Other interesting supplemental readings are
Investing in REITs (Block) and A Primer on Securitization (Kendall and Fishman)

Class notes: Copies of the PowerPoint slides used in class will be posted in PDF format on
Canvas in advance of class time. Even if the slides are posted well in advance, I often
update and modify them a day or two before class, so you should plan to print or
download the most current version shortly before class. These slides are not designed to
be a substitute for attending class.

Financial Calculator: You will need a financial calculator to compute annuities and present
values. You are also responsible for knowing how to use the annuity and present value
functions. Most students find it faster to use a simple financial calculator than to use
Excel for these functions. You will need to use a financial calculator on the exams. Any
calculator able to perform the above functions will do, such as the HP 10bii+. If possible,
I will make calculators available for borrowing from the reserve desk at Lippincott
Library.

Canvas: I rely on Canvas to communicate with you and provide class materials:
 Copies of the slides used in class
 Sample Excel spreadsheets from the in-class examples
 Problem sets (both required questions and practice problems) and other assignments
 Case materials
 Old exams (with solutions)
 Supplemental class material, such as newspaper articles
 Announcements, updates, and clarifications
 Discussion threads for Q+A (e.g., about a case)

Problem Sets:
Class Prep questions: These questions are due before class on the dates indicated on the
calendar and should be submitted via Canvas. These questions are meant to help you
think about a topic before we cover it in class and/or in preparation for a class discussion.
Some of these questions are qualitative and don’t have a right or wrong answer. Other
questions are quantitative and have a correct answer, but I do not expect you to get it
right – the goal is to make you think about a particular issue so that you can make the
most out of class.

You should submit your answers to these questions via Canvas by 9 p.m. the day before
class. You may discuss the questions with other students, but each student should submit
their own answer. The TAs and I will review your answers and you may be called to
expand on them in class. Your submissions will be graded as complete – if you have
Professor Todd Sinai Wharton Real Estate Investments, Fall 2024

made an effort to answer the question, even if the answer is not correct – or incomplete if
you do not submit an answer or if your answer indicates that you have put minimal or no
effort in working through the question.

Practice problems: Additional practice problems are meant to be done after class to consolidate
your understanding of the material. Doing these problems is a fundamental part of
learning the class material and are essential to prepare for the exams. Solutions are
provided. I will neither ask you to hand in the problem sets nor grade them. They still
are important. Please do the practice problems after the topic in which they are covered.
(For example, do Practice Problems set #9 after we cover Topic #9.)

Old exams: Three years’ worth of old exams will be available on Canvas. I encourage you to do
these, timed and without looking at the solutions, in advance of the midterms.

Cases:
There will be three group-based cases, each of which will include a quantitative component
(financial modelling) and a qualitative component.

You will choose your own case team of up to four members and must work with the same team
on all three cases. Your group may contain members from my class section, but not other
professors’ sections. It is your responsibility to find a team. You and your teammates should
sign up under the “team sign-up” section on Canvas before Case 1 is distributed. The cases
require a variety of skills, from financial savvy to management. You should try to have a mix of
talents and backgrounds on your team. In addition, I strongly discourage you from taking the
“divide and conquer” approach of having only one or two team members work on each case.

You will be more successful if the group uses a collaborative process. You are responsible for
making your team work. If you think a teammate is not working in good faith, or has neglected
to finish her/his share of work, you must try hard to work it out within the group. If you still feel
aggrieved after the case is turned in, send me an email before the case is graded. If two or more
serious complaints are registered against you by your group members, 20% will be deducted
from your overall case grade.

You may discuss the cases with other groups in this class and give and receive assistance.
However, each group must separately prepare their own case materials and write-ups. Cases are
to be submitted on Canvas by the due date and time on Canvas. Cases will be due in advance of
being discussed in class so I can review them to prepare the class discussion. Any case that is
turned in after the deadline but before the class discussion will incur a late penalty of 0.5% per
hour. Cases will not be accepted after the case discussion class starts, nor will extensions be
given.

Examinations:
Professor Todd Sinai Wharton Real Estate Investments, Fall 2024

Workload: Two midterm exams will be held in regularly scheduled class time. The exam will
be closed-book and closed-note, though you will be allowed two pages of notes. You
will also need to use a financial calculator for calculations.
Midterm dates:
Exam 1: Tuesday, October 1
Exam 2: Thursday, November 21
Material covered: Exams will cover the material presented in class and during guest lectures,
the class notes, the cases, the practice problems, and the required readings. Exam 2 is not
cumulative, but assumes proficiency in the basic skills taught in the first portion of the
class.
Passing the exams: Both exams must be passed in order to receive a passing grade for the
course.
Exam makeups: Exams must be taken at the assigned time. If you know in advance that you
will not be able to attend class on the exam dates, do not take this class. Makeups will
be given only for medical or exceptional personal situations. To be eligible for a makeup,
you need to notify me in advance of an exam if there is a chance you might miss it, unless
in the case of a truly unforeseeable emergency.

Attendance:
Your presence and attention in class is critical to the collective classroom experience. Because
of that, I grade attendance. You may have up to three absences without losing attendance credit,
as long as those absences are accompanied by you completing a Course Action Notice (CAN) to
report your absence. Absences due to extenuating circumstances such as illness or family
emergencies, as reported in the CAN, are eligible for access to that day’s class video. Please do
not send me any documentation of medical issues such as illness; I do not need to see it.
Walking into class late is disruptive and disrespectful to your fellow classmates and professor.
Hence, I take attendance at the start of class (using the aPlus+ app) and arrivals after I start class
(even a minute or two late) will be marked as absent.

Grading:
Weights: The course grade will be based on the following:
 Exams: 40 percent (20 percent each); you must pass each individually.
 Cases: 45 percent (15 percent each)
 15 percent participation, attendance, and submission of “Class prep questions”.
 You get a 0 for the class if you do not get a 100% on the “I read the syllabus” quiz on
Canvas. I allow retakes until you get it right.
Curve: Generally, each individual assignment is curved and the variance is standardized so no
one assignment contributes more variance to your final grade than another. The curved
scores are totaled for each student and the total is curved again within section. In practice,
this means that your grade is determined by how many standard deviations your
assignment scores are above or below your section's mean and whether you have
correlated over- or underperformance across assignments.
Professor Todd Sinai Wharton Real Estate Investments, Fall 2024

Regrades: My policy on regrades is appended to the syllabus.

Guest Speakers:
Guest speakers are scheduled outside of normal class time. These sessions are required material.
These lectures often cannot be videotaped (so the guests feel comfortable speaking freely). You
may need to get the notes from someone else if you are unable to attend.
 September 23, 7 p.m., SHDH 350: Adam Gallistel, Managing Director, GIC
 TBD
 November 11, 7 p.m., SHDH 350: Olivia John, Founder and CEO, Osso Capital

Classroom Expectations:
Electronics: Laptops and cell phones are not allowed to be used during class except for some
very specific instances (such as going over a modeling assignment) when I will announce
that they are okay. Tablets/reMarkables are allowed as long as they lie flat on the desk
and are being used for reading or annotating class notes or for taking notes.
Be on time: I will start on time and end on time. Please do not arrive late; it is a distraction to
me and others in the room.
Be prepared: Completed the required readings in advance of the lecture and be ready to
comment on or discuss the class material.
Participation: Be willing to participate in class discussions, and to speak up if you’re
bewildered.
Guest speakers: Be present for the talks by outside speakers unless you have a conflict with
another class.
Good sport: I expect that you will not find every topic we cover to be of interest to you, but that
you will be a good sport about it. Students who are considering a career in real estate
development, for example, are interested in very different things than students who are
considering a career on Wall Street. All the topics we will cover are of interest to
someone in the class, but not all necessarily are of interest to everyone. Please recognize
that your classmates and you do not necessarily share the same tastes when I go into
depth on a topic that you feel is not especially relevant to you.

Getting help:
Email: Do not think that a question is too “basic” to ask me. I am happy to help students
understand any material they are having difficulty with. All I ask is that you take a
serious stab at it yourself before turning to me.
Office hours: I hold regular drop-in office hours in my office. If you would like to reserve a
specific time slot just for yourself or you and your case team, please email me and we’ll
schedule an appointment.
Lecture recordings: Recordings of lectures are available upon request for students who had an
excused absence or who were in class but want to rewatch the class. Case discussions are
not recorded.
TAs: The course TAs will hold office hours in advance of the cases and review sessions for the
practice problems before the exams.
Professor Todd Sinai Wharton Real Estate Investments, Fall 2024

Policy on “AI”: Within this class, you are welcome to use AI models for any purpose, except on
exams. If you use an AI program, its contribution must be acknowledged in the
assignment, and if you include material generated by an AI program, it should be cited
like any other reference material. You will be penalized for using an AI program without
acknowledgement and the university's policy on plagiarism still applies to any uncited or
improperly cited use of work by others, including an AI tool, or submission of work by
others as your own. In addition, you are responsible for any inaccurate, biased, offensive,
or otherwise unethical content you submit regardless of whether it originally comes from
you or an AI program.

Honor Code:
It is your responsibility to make sure your entire team prepares the cases independently.
Violations by any team member will result in the entire team failing the class. Here are the rules:
You may verbally discuss the cases, including ideas, approaches, and solution methods, with
other students who are currently enrolled in REAL/FNCE 2090. Each group must separately
prepare their own case materials and write-ups without reference to anyone else’s case materials
or write-ups.
You may not obtain assistance, or solicit advice, from current students in MBA sections
of this class, former UG or MBA students, current or past employees of firms involved with the
cases, or anyone else involved in the real estate investment industry. You also may not provide
such assistance or advice once you are no longer enrolled in this class. You may not share your
written materials or Excel with anyone.
Violations of these rules will be treated as violations of Penn’s Code of Academic
Integrity. I do not distinguish between the plagiarizer – the team using other’s materials – and
the provider of the materials. Do not circulate your solutions to the cases. If I find your case to
be the source of plagiarized material, I will report the violation through the University’s
academic integrity process, even if you have already graduated.

Other items:
Schedule: The class schedule is an ambitious goal and may not reflect the actual timing, or even
sequence, of covering material.
Pass/fail: Be aware that it is the policy of the Real Estate Department that students who take the
class pass/fail cannot count the course toward the credits necessary to complete the real
estate concentration.
Expectation of mutual respect: This class strives to be an inclusive community, learning from
the many perspectives that come from having differing backgrounds and beliefs. As a
community, we aim to be respectful to all. Faculty and students are expected to commit
to creating an environment that facilitates inquiry and self-expression, while also
demonstrating diligence in understanding others’ viewpoints.
Wellness statement: I am deeply aware of and sympathetic to the challenges that students may
face both in and out of the classroom. Mental health concerns or stressful events may lead
to diminished academic performance or reduce your ability to participate in daily
activities. Free, accessible, confidential mental health services are available on campus
Professor Todd Sinai Wharton Real Estate Investments, Fall 2024

(see the Counseling & Psychological Services (CAPS) website at

https://caps.wellness.upenn.edu/). Students should also feel free to reach out to me to
discuss any issues or request accommodations as necessary.

Copyright Information:
All federal and state copyrights reserved for all original material presented in this course through
any medium, including lecture and print. Any copyrighted material provided in this course is for
your personal, noncommercial use and may not be copied and distributed to others without the
prior permission of the copyright owner. Individuals are prohibited from being paid for taking or
transferring their class notes without my express written permission. This also means you are
not permitted to post class slides, notes, or case materials on course material sharing sites.
Professor Todd Sinai Wharton Real Estate Investments, Fall 2024

Course Schedule
Required readings are in bold text. Textbook readings available via “Course Materials@Penn Libraries” are marked
with an asterisk (*). Other readings are optional. Textbook chapter and page numbers are listed for the 5.2
edition.

Date Topic Readings

1. August 27 Topic #1: Real Estate Investments Linneman [Chapter 2, 16-29.] “What Is Real
 Course requirements Estate?”
 Class overview
 Overview of real estate
markets
2. August 29 Topic #2: Property-level valuation Take the “I read the syllabus” quiz on Canvas.
 Fundamentals of value
 DCF valuation Optional: Watch “Valuation methods” video on
 Pro-forma structure Canvas
 Components in NOI
 CapEx reserves *Linneman [chapter 5, pp. 55-69] “Property
 Cash flow at sale Level Pro Forma Analysis”
Linneman [chapter 6] “Financial Modeling”
 Cap rates
*Linneman [chapter 9] “The Use and Selection
 Return measures
of Cap Rates”
*Linneman, “Prerequisite I: The Basics of
Discounted Cash Flow and Net Present Value
Analyses”
*Linneman, “Prerequisite II: IRR: What It Is and
What It Isn’t”
Berk and DeMarzo, Corporate Finance (Third
Edition), chapter 4: “The Time Value of
Money.”
3. September 3 Topic #2: Valuation methods, Optional: Watch “Cap rates” video on Canvas
continued
Topic #3: Leases
 Land rights
 Lease terms
 Effective rent
4. September 5 Topic #3: Leases Class Prep (CP) #1: Leases
 Land rights
 Lease terms *Linneman [chapter 4] “The Fundamentals of
 Effective rent Commercial Leases.”
 Percentage rent
 Optionality
5. September 10 Topic #4: Real estate markets and Class Prep (CP) #2: Cap rates
pricing
7. September 12 Topic #5: Creating or finding value BP: Linneman, “Forces Changing the Real Estate
in real estate investments Industry Forever”
8. September 17 Topic #6: Evaluating pro-formas CP #3: “Brooklyn Mixed-Use” mini-case
Professor Todd Sinai Wharton Real Estate Investments, Fall 2024

and risk at the property-level

Case #1 handed out BP: Martin, “Nine Abuses Common in Pro
Forma Cash Flow Projections”
Linneman [chapter 10] “Development Pro Forma
Analysis.”
9. September 19 Topic #7: Mortgages *Linneman, “Prerequisite III: Amortization
 Mortgages 101 – elements and Fundamentals”
terms
 Amortization Optional: Watch “Amortization” video on Canvas
 Underwriting and debt
capacity
 Debt service
 Debt in the pro forma
Midterm review sheet handed out
10. September 23, Guest Speaker: Adam Gallistel,
7 p.m. Managing Director, GIC
September 24 No class
11. September 26 Topic #7: Mortgages, continued CP #4: Refinancing
 Mortgage options
 Construction financing Linneman [chapter 5, *pp.74-75] “Property
 Refinancing Level Pro Forma Analysis”
 Risk of leverage *Linneman [chapter 15] “The Use of Debt and
Mortgages”
12. October 1 Midterm Exam 1 – in class Linneman [4th: chapter 4, pp. 55-56, 59-63; 5th:
Topic #8: Taxes and Real Estate chapter 5, pp. 70-73, 75-83] “Property Level
Pro Forma Analysis”
Linneman [4th: chapter 16; 5th: chapter 18]
“Real Estate Exit Strategies.”
October 3 No class – Fall break
12. October 8 Topic #8: Taxes and Real Estate Linneman [chapter 5, pp. *70-73, 75-83]
 Taxes in the pro forma: “Property Level Pro Forma Analysis”
Income taxes, depreciation, Linneman [chapter 18] “Real Estate Exit
capital gains Strategies.”

13. October 10 Case #1 discussion

14. October 15 Topic #8: Taxes and Real Estate, CP #5: Getting to ATCF
continued
 Taxes in the pro forma:
Income taxes, depreciation,
capital gains
 Tax risk
Case #2 handed out.
15. October 17 Topic #9: Financing real estate *Linneman [chapter 17] “Ground Leases as a
 Ground leases Source of Finance.”
 Hybrid debt Linneman [chapter 19] “Real Estate Private
 Joint ventures Equity Funds”
BP: Maira, “Understanding Real Estate Joint
Professor Todd Sinai Wharton Real Estate Investments, Fall 2024

 Mezzanine debt Ventures”

Linneman, [chapter 14] “Should You Borrow?”
16. October 22 Topic #9: Financing real estate,
continued
17. October 24 Topic #10: Pricing and cycles in BP: Smith, “Adjustment Mechanisms in Real
real estate markets Estate Markets”
 Boom/busts and oversupply *Linneman [chapter 25] “Real Estate Cycles”
 Managing the cycle Linneman [chapter 11] “Development Feasibility
 Inflation Analysis”

18. October 29 Topic #11: Equity securitization BP: Harper, “Basic Valuation of a Real Estate
and the REIT market Investment Trust”
 Intro to REITs Linneman [chapter 21] “REITs and Liquid Real
 Financial evaluation: FFO and Estate”
AFFO BP: BofAML REIT Primer, 6th edition, pp. 1-7,
 Financial evaluation: NAV and 23-24
implied cap rates Linneman [chapter 12] “Real Estate Company
 UPREITs Analysis.”

19. TBA TBA Guest Speaker

20. October 31 Case #2 discussion.
21. November 5 Topic #12: Securitization of Debt BP: Gordon, “How to Build a Bond”
Interests: Commercial BP: Cibelli, “Lord Abbett Investment Brief,
Mortgage-Backed Securities CMBS 2017”
 CMBS history and growth Linneman [chapter 16] “Sources of Long- and
 Structuring basics Short-term Debt”
 Pooling and tranching
 Rating
Case #3 handed out.
22. November 7 Topic #12: CMBS, continued. CP #6: CMBS
 Pricing
 Risk: Conflict-of-interest in BP: Poindexter, “Defaults in Securitized Real
special servicing Estate Loans”

23. November 11 Guest Speaker: Olivia John,

Founder and CEO, Osso Capital
24. November 12 Topic #13: Corporate real estate Linneman [chapter 23] “Corporate Real Estate
 Own vs. rent Decision Making”
 Sale-leasebacks
 Returns
25. November 14 Topic #14: Housing Markets BP: Sinai, “Safety in Renting”
26. November 19 Topic #14: Housing Markets,
continued
27. November 21 Midterm Exam 2
November 26 No class.
Professor Todd Sinai Wharton Real Estate Investments, Fall 2024

28. December 3 Case #3 presentations.

December 5 Case #3 presentations, continued

Regrade Policy

I strive for accuracy and equity in the grading for this class. However, despite my best efforts,
grading is sometimes imperfect. The following set of rules provides a mechanism for requesting
regrades to correct grading errors. If you do not follow these rules, you will forfeit your right to a
regrade. The rules are designed to maintain fairness by not rewarding gratuitous regrade requests
while also not penalizing students for bringing errors to my attention.

The onus for bringing any errors to my attention falls upon you. Pick up your assignments
promptly so you can check the grading and make sure that your grade on Canvas matches the
grade on your assignment.

1) If we made an error in adding up your points to obtain your total score, all you need to do
is email me a short explanation describing the points we failed to add and also give me a printout
of your email attached to your graded assignment.
2) My intent is that you only lose points once for a mistake. Sometimes, an error in one part
of an assignment creates incorrect answers in another part of the assignment. In that case, we
look for internal consistency. If your answer would have been correct had you not made your
earlier mistake, we will note the mistake but not deduct further points for it. Similarly, if in a
case you repeat the same calculation in a number of circumstances, we will deduct points only
once for a calculation error but we will try to note it every time. (If an error is circled but no
point deduction is noted, we did not take off points for it.)
If you believe that we inadvertently deducted points multiple times for the same error,
please email me with a detailed explanation. Please also print out your email and submit it to me
along with the graded assignment. Be sure to take the time to make sure you understand the
errors you made before submitting the regrade request.
3) To aid your understanding of the material and of the grading philosophy, I typically
provide an explanation of how the points were allocated. If you believe your grading was not
consistent with the stated guidelines, please email me with a detailed explanation. Please also
print out your email and submit it along with the graded assignment. Be sure to take the time to
make sure you understand the errors you made before submitting the regrade request. If not, you
run the risk that you actually did worse than you thought and we were too generous with the
points given. I will not consider regrade requests that are based on an argument that the grading
guidelines being unfair. The guidelines are applied equally to everyone, and thus are equitable.
Rather, the regrade request is intended to correct errors in adhering to the rubric.
4) If you merely would like an explanation of the grading on an assignment, email me
letting me know what you would like me to explain. We will set up a time to meet and I will
explain it to you. I need this advance notice to review your assignment before we meet; it is not a
good use of time to go over the grading of your assignment in “real time” with no preparation.
Professor Todd Sinai Wharton Real Estate Investments, Fall 2024

General policies:
1) I personally do all the regrades, in conference with the graders.
2) If you request a regrade, the entire assignment will be reviewed. Errors tend to be random
and offset each other. It would be unfair to the rest of the class to correct only the grading errors
that went against you but not the ones in your favor.
3) Regrade requests will be accepted for three weeks following the return of an assignment.
If an assignment has multiple parts, the deadline for a regrade request for any part of the
assignment is three weeks after the return of the last part of the assignment.
4) The acceptable margin of error on a 100-point assignment is +/- 2 points. Please do not
submit regrade requests for one or two points total. The exception is if we added up your points
incorrectly: In that case I will correct any size error.