Course Objectives: This course is designed to introduce students to various facets of real estate securitization from both a debt and equity perspective.  Students will not only gain an understanding of the theory underlying the securitization, structuring, and pricing of assets in general and real estate in particular but will also learn how to actually structure and value various real estate securities using Excel. Debt instruments explored include residential and commercial mortgage-backed securities (MBS) in addition to interest rate swaps. Equity instruments explored include real estate investment trusts (REITs), commingled real estate funds (CREFs), real estate limited partnerships (RELPs) and master limited partnerships (MLPs), and real estate swaps. The course also explores real estate securitization in a mixed asset portfolio as well as international real estate securitization. While it is not currently a prerequisite for this course, students are encouraged to take my real estate finance course as well as a fixed income course to gain the maximum benefit. Students are required to have completed Foundations of Finance prior to taking this course.

Texts:
Required

• Lewis (L), 1989, Liar's Poker, Penguin Books, NY, NY
• Fabozzi (F), 2001, Handbook of Mortgage-Backed Securities, 5th Edition, McGraw-Hill Trade
• Garrigan and Parsons (GP), Real Estate Investment Trusts: Structure, Analysis and Strategy, McGraw-Hill Irwin

• Hayre, Editor (H), 2001, Salomon Smith Barney Guide to Mortgage-Backed and Asset-Backed Securities, John Wiley & Sons.
• Block, 2002, Investing in REITs: Real Estate Investment Trusts, Bloomberg press.

Lecture Notes: Available at NYU Undergraduate Bookstore

Grading: Grading standards follow the Finance department guidelines with students ranked based on a curve.
 

Category	Percent (Weight)
Mini-Cases	60%
Midterm Exam	15%
Final Exam	20%
Other (i.e., Class Participation)	5%

Mini-Cases: Since these cases are designed to prepare you for a job on Wall Street, all cases are individual projects. No group submissions are allowed. You are allowed to discuss the case with others in the class but all work is to be sole authored.

• Case 1: Types of Mortgages (recm1.pdf). Primers: Using Excel: pv.xls ,Calculating APR: apr.xls
• Case 2: Mortgage Prepayments/Pricing the Prepayment Option (recm2.pdf)
• Case 3: Strips, CMOs, and Option-Adjusted Spreads (OAS) (recm3.pdf), Primer: CMO example: cmo.xls
• Case 4: PACs, TACs, Floaters, and Inverse Floaters (recm4.pdf)
• Case 5: Analysis of REITs (recm5.pdf) and (REIT04) data
• Case 6: Analysis of CREFs (recm6.pdf) and (CREF04) data
• Case 7: Analysis of RELPs (recm7.pdf) and (RELP04) data
• Case 8: MPT Analysis (recm8.pdf) and and MPT04 data

Topic Schedule

A more detailed topic schedule can be found in the table of contents section of my real estate capital markets lecture notes for this course which you can purchase in the NYU undergraduate book store. Please click on the table of contents link above for a preview of what you will learn if you take this course.
 

Week	Date	Day	Topic	Assigned Readings
			Residential Mortgage-Backed  Securities (RMBS): An Overview  including Types of Mortgages	L. Hayre, March 1999, Guide to Mortgage-Backed Securities, Salomon Smith Barney Liar's Poker (Whole Book) F. Chapter 3 - Securities Backed by Adjustable Rate Mortgages Case 1: Types of Mortgages
			Residential Mortgage-Backed  Securities (RMBS): Structuring	S. Gangwani, 1998, MBS Structuring: Concepts and Techniques, The Securitization Conduit 1(3): 26-37.  D. Lee and W. Chen, 1998, Securitization: An Overview of Arbitrage and Tranching, The Securitization Conduit 1(1): 5-12
			Residential Mortgage-Backed  Securities (RMBS): Prepayments,  Pricing and Yields	L. Hayre and A. Rajan, 1995, Anatomy of Prepayments: The Salomon Brothers Prepayment Model, Salomon Brothers.  P. Kupiec and A. Kah, 1999, On the Origin and Intrepretation of OAS, Journal of Fixed Income, pp. 82-92  D. Babbel, 1992, Pitfalls in the Analysis of Option-Adjusted Spreads, Financial Analyst Journal, pp. 65-69:  F. Ch. 19 - Overview of Recent Prepayment Behavior and Advances in its Modeling F. Chapter 26 - Duration and Convexity Drift of CMOs Case 2: Mortgage Prepayments/Pricing the Prepayment Option
			Residential Mortgage-Backed  Securities (RMBS): Types - Stripped MBS, CMOs, PACs, TACs,  IOs, POs, Floaters and Inverse Floaters	F. Chapter 8 - Stripped Mortgage Backed Securities F. Chapter 9 - Collateralized Mortgage Obligations (CMOs) F. Chapter 10 - Effect of PAC Bond Features on Performance F. Chapter 11 - Z Bonds F. Chapter 12 - Companions with Schedules F. Chapter 13 - Inverse Floating Rate CMOs F. Chapter 14 - Nonagency CMOs Case 3: Strips, CMOs, and Option-Adjusted Spreads Case 4: PACs, TACs, Floaters, and Inverse Floaters
			Residential Mortgage-Backed  Securities (RMBS): Valuing  Different Types of MBS.	F. Chapter 23 - Valuation of Mortgage Backed Securities F. Chapter 27 - Understanding Inverse Floater Pricing F. Chapter 21 - Next Generation Prepayment Models to Value Nonagency MBS
			Commercial Mortgage-Backed  Securities (CMBS): An Overview	S. Gordon, Summer 2001, New Rules for an Old Asset Class, CMBS World 3(2): 24 - 31  Daniel Wheeler, January 2001, A Guide to Commercial Mortgage Backed Securities, SalomonSmithBarney.  F. Chapter 35 - Commercial Mortgage-Backed Securities
			CMBS: Bond Ratings, Default  Risk, and Structuring	S. Gordon, 2002, How to Build a Bond, CMBS World: 16-19  S. Fuller and B. Lancaster, 2001, CMBS PAC IOs: Structure and Strategy, Wachovia Securities, 1-12.  H. Esaki, Winter 2002, Commercial mortgage defaults: 1972-2000, Real Estate Finance 18(4): 43-53  P. Corcoran, Fall 2000, Stress and defaults in CMBS deals: Theory and evidence, Real Estate Finance . 17(3): 63-72  F. Chapter 38 - CMBS Collateral Performance
			CMBS: Pricing/Valuation	M. Adelson, Sum2002, How the Events of September 11 Affect Thinking about Risk, CMBS World 4(2):54-79. P. Rubenstein, Sum2002, Do Current CMBS Pricing Conventions Make Sense, CMBS World 4(2): 50-52.  C. Maxam and J. Fisher, 2001, Pricing Commercial Mortgage-Backed Securities, Journal of Property Investment and Finance 19(6): 498-518  P. Childs, S. Ott, and T. Riddiough, 1996, The Pricing of MultiClass Commercial Mortgage-Backed Securities, Journal of Financial and Quantitative Analysis 31(4): 581-603  B. Lancaster, 1999, Analyzing and Valuing CMBS: What to Look For, The Securitization Conduit 2(2 & 3): 14-20.
			Real Estate Investment Trusts	Y. Liang and W. Whitaker, 2000, Style Attributes of Equity REITs, R.E. Finance: 31-36. Moody’s Favorite Ratios for Evaluating REITs and REOCs, September 2000 Real Estate Accounting and Reporting Study, Prudential, July 1997  Use of FFO in SEC Filings, Goodwin Proctor, March 2003  GP Chapter 1 – Modern REIT Industry: An Overview GP Chapter 2 – Going Public: Formation of a REIT GP Chapter 3 – REITs as Legal Entities GP Chapter 9 – REIT Mergers and Acquisitions GP Chapters 12 and 13 – Historical Behavior of REIT Returns GP Chapter 14 – Financial Analysis of REIT Securities Case 5: Analysis of REITs
			Commingled R.E. Funds  and Real Estate Swaps	J. Fisher, M. Miles, and B. Webb, Fall 1999, How Reliable Are Commercial Appraisals? Another Look, Real Estate Finance, pp. 9-15.  J. Fisher, Spring 2000, Trends in Capitalization Rates from the NCREIF Database: Twenty Years of Sold Properties, Real Estate Finance, pp. 35-40.  J. Fisher, Summer 2000, A Repeat Sales Index for Commercial Real Estate, Real Estate Finance, pp. 66–71.  D. Geltner, Spring 2000, Benchmarking Manager Performance Within the Private Real Estate Investment Industry, Real Estate Finance, pp. 23-34  Case 6: Analysis of CREFs
			Real Estate  Limited Partnerships	S. Bergsman, Nov 19 2001, Vulture Funds Present Declining Opportunities, Barrons: pp. 29  M. Fickes, 2001, Feasting on Market Inefficiency Worldwide, National Real Estate Investor, pp. 26-36.  M. MacHarg, K. Berman, R. Graham, 2001, Securities Regulation Forever  Unregulated: A Primer for Private Fund Sponsors – Part I, Insights, pp. 9-16.  B. Vinocur, 1994, As Property Values Rebound General Partners Seek to Buy Out Small Investors on the Cheap, Barrons: pp. 32.  Case 7: Analysis of RELPs
			Real Estate in a Mixed Asset Portfolio	J. Fisher and Y. Liang, Fall 2000, Is Sector Diversification More Important Than Regional Diversification, Real Estate Finance, pp. 35-40.  K. Froot, Summer 1995, Hedging Portfolios with Real Assets, Journal of Portfolio Management, pp. 60-77.  S. M. Giliberto, Spring 1993, Measuring Real Estate Returns: The Hedged REIT Index, Journal of Portfolio Management, pp. 94-99.  R. Greer, Winter 1997, What is an Asset Class, Anyway?, Journal of Portfolio Management, pp. 86-91.  J. Stoesser and R. Hess, 2000, Styles of Higher Return Strategies, Journal of Real Estate Portfolio Management, pp. 417-422.  S. Hudson-Wilson and B. Elbaum, Spring 1995, Diversification Benefits for Investors in Real Estate, Journal of Portfolio Management, pp. 92-99.  GP Ch. 15 – Public and Private R.E.: Performance Implications for Asset Allocation GP Chapter 17 – REIT Investment Strategy: The Pension Fund Perspective Case 8: MPT Analysis