Real Estate Investment ModelingCornell

Certificate Program

In this course, you will gain an overview of real estate financial modeling, focusing on properties with multi-year leases. Using the models and frameworks established as today's industry standards in real estate, you will explore deriving basic valuations and performance calculations. You'll discover how a discounted cash flow model can be used to deliver sound real estate investment and financial decision-making through hands-on practical exercises.

As part of this process, this course will introduce the various Excel functions required to develop dynamic models to assist decision-makers. To be successful, these tools must be simple to use and interpret, must offer realistic outcomes to complex hypothetical real estate situations, and must be capable of handling a wide range of scenarios. High-stakes decision-making requires a comprehensive understanding of the options and their associated risk. Therefore, the first step is to adopt best practices then apply the essential building blocks in Excel that will be covered in this course, creating a foundation for your future work in this area.

In the competitive world of commercial real estate and asset management, creating reliable tools like acquisition models will allow you to make confident predictions, even in the face of common risks such as building vacancy. In this hands-on course, you will analyze the procedure for building a structural model from the ground up.

This course will start with forecasting rental income and its main challenge, vacancy, for an office building. Forecasting future operating income requires looking lease by lease through each source of operational revenue and expense. Some items, such as expense recoveries, are recurring; others, like tenant improvements and leasing commissions, are exceptional. From here, an estimation of value and performance will require an assessment of the risks to which the investment will be exposed. Aggregating this forecast of unlevered income after making the proper adjustments for risk is the foundation for all future acquisition models. By the end of this course, you will be poised for success as you apply the concepts from this course in your role and beyond.

You are required to have completed the following course or have equivalent experience before taking this course:

• Discounted Cash Flows in Real Estate

OR

• Familiarity with the Microsoft Excel environment and the structure of a basic discounted cash flow model
• The ability to apply conditional functions in Excel (IF statements and LOOKUP, TRUE/FALSE, INDEX/MATCH, OFFSET, and MIN/MAX functions) to produce the desired outcome

While all commercial real estate transactions first require understanding the merits of a particular location and property, investors also pay close attention to the capital stack and the equity at risk. In fact, few deals are done with equity capital only. Using external financing to close on certain transactions is often motivated by risk-adjusted target performances. When done carefully, investors can take advantage of the cheaper cost of capital to potentially magnify their returns positively.

In this course, you will expand on the basic underwriting model for property acquisition to incorporate financial leverage and scenario analysis. The first step is to take a precise look at how the most common types of mortgages work, noting that financing and capital structure decisions are far more complex than just building amortization tables. They include crucial details that can lead to a deal's success or failure and have important ramifications down the road. To apply your learnings on the optimal balance in your deal structure, you will model a variety of scenarios across many loan types while keeping the element of uncertainty in the forefront. You will acquire a what-if mindset through this process, helping you identify the optimal capital structure given the deal you are contemplating. With this tool combining your forecasting intelligence with a strategic choice, you will be set up to expand your knowledge in new ways and grow in your role and beyond.

You are required to have completed the following courses or have equivalent experience before taking this course:

• Discounted Cash Flows in Real Estate
• Unlevered Real Estate Acquisitions

With population growth and a finite amount of space on this planet comes a natural expansion of the land we use for human activity, and real estate development is the immediate consequence of this ever-growing human footprint. Most of the time, real estate development is a business in and of itself, with each development decision requiring meticulous economic analysis.

In this course, you will start by assessing the real estate process as a whole, which will inform your understanding of why properties are located where they are. You will then examine the financing process that facilitates real estate development. To apply your knowledge, you will build a model from the ground up that includes the sequence of various equity and construction loan draws, including how to reallocate the proceeds. The course concludes with an evaluation of the optimal use of a vacant lot in New York City. You will apply what you have studied throughout this course to make a recommendation with respect to the appropriate land value and its best use given the financing structure in place, providing you with experience and best practices to apply to your role.

You are required to have completed the following courses or have equivalent experience before taking this course:

• Discounted Cash Flows in Real Estate
• Unlevered Real Estate Acquisitions
• Real Estate Debt Financing and Scenario Analysis

Most commercial real estate deals succeed or break down around a simple concept: Does the ownership have what it takes to make it happen? The dilemma, then, that most investors contemplate is whether to be the sole investor and own all risks and profits or to partner with someone in a joint venture.

In this course, you will discover how to analyze these options for a variety of investment scenarios, balancing the right incentives for each partner to perform at their best while avoiding conflicts of interest. You will examine examples of incentives, including profit-sharing rules, assessing the options when it comes to profit distribution and the variables involved, such as the timing and proportions of this disbursement.

You will then gain experience applying the most common profit-sharing rules at the joint-venture level by building an equity waterfall from the ground up that includes four layers of distribution. By the end of this course, you will have more context and experience with joint ventures and the variables behind successful deals in the marketplace.

You are required to have completed the following courses or have equivalent experience before taking this course:

• Discounted Cash Flows in Real Estate
• Unlevered Real Estate Acquisitions
• Real Estate Debt Financing and Scenario Analysis
• Real Estate Development Financing

In this course, you will apply real estate financial modeling skills to a real-world example, offering the advantages of immersive decision-making but also assessment of that decision based on the outcome of a real example. You will examine an opportunity to invest in a Class B building located within the New York City submarket of Hell's Kitchen on the west side of Manhattan. You will walk through the process of carefully underwriting the deal and, ultimately, deciding whether or not to invest.

In the process of this example transaction, you will gain experience using the industry's commonly adopted approach: utilizing widely used modeling tools including Microsoft Excel and ARGUS, which is used to model office, retail, and industrial operating cash flows. By adjusting crucial variables, you will discover new insights in the process of creating a dynamic model using these industry best practices. Finally, you will delve into the step-by-step market analysis behind each one of the tenant scenarios to inform a final recommendation. By experiencing the whole project process, you will be equipped to apply these skills to your projects across the industry.

You are required to have completed the following courses or have equivalent experience before taking this course:

• Discounted Cash Flows in Real Estate
• Unlevered Real Estate Acquisitions
• Real Estate Debt Financing and Scenario Analysis
• Real Estate Development Financing
• Equity Waterfalls in Joint Ventures