University of Southern California Downtown Los Angeles Real Estate Paper To provide a detailed response about a neighborhood in the downtown Los Angeles ar

University of Southern California Downtown Los Angeles Real Estate Paper To provide a detailed response about a neighborhood in the downtown Los Angeles area. Only 5 bullet points to answer. University of Southern California
Sol Price School of Public Policy
red 362—Real Estate Development Fundamentals
Spring 2020
Final assignment
Professor: Jorge De la Roca
Instructions
It is now time to use the skills we have learned throughout the course. The goal is to pursue
your first Real Estate investment, using all the tools we have studied in class. For this final
assignment you need to work in groups of four and to turn in a printed memo. The two-page
memo (single-spacing, Times New Roman 12 pt or Palatino Linotype 11pt) must summarize in
each paragraph most of the issues mentioned below. You can append Excel tables at the end of the
document and you have to refer to them in the memo as figures or tables. The assignment is due
Tuesday, April 28 and includes a group presentation of 15 minutes.
Guidelines
• The group has $350,000 to invest (be very careful with your equity since it includes your
lifetime savings, money from relatives and bequests you have received or will receive).
• Your investment horizon is five years. Some members of the group may want to continue
investing in Real Estate after, but the main idea is that you want to maximize the value of
your investment over the hold period. You are quite young and not risk averse, thus, you are
not that concerned about getting stable positive cash flows. However, a lending institution
will not like a long sequence of negative cash flows in the property.
• Your investment needs to be located in the vicinity of one usc campus (University Park
Campus or Health Science Campus) or in the the Boyle Heights neighborhood. You have
to be realistic with what you can get with your equity. Our first Real Estate investment can
not be a multifamily building of 20 units. You can use the Revere Street case study as a point
of reference.
• After choosing your property in one of the three neighborhoods, you have to develop a setup,
secure funding from a lending institution, forecast the cash flows in a proforma, and calculate
financial ratios and other measures of value.
The Real Estate space market: lessons from urban economics
• Provide a brief history of the neighborhood and underscore any traits that may have persisted and make it unique and attractive today.
• Describe the composition of neighborhood residents and characterize the profiles of your
potential tenants. Data on neighborhoods are usually provided at the census tract level.
You can look at census tract 222700 for University Park Campus, 203100/203300 for Health
Science Campus or 203600/203800/204300 for Boyle Heights. Keep in mind that a neighborhood may encompass more than one census tract, and in fact, you may want to examine
the composition of residents in surrounding neighborhoods too. Census data are available
every ten years and you can go back to 1970 if you want to examine trends. Several websites
provide useful data: http://www.census.gov, http://maps.latimes.com/neighborhoods/,
http://www.usa.com among many others.
• Describe your property’s accessibility and distance to the nearest Central Business District
(cbd). What can we learn from urban location models? Identify key neighborhood amenities/disamenities and discuss whether they have any influence on your potential tenants.
• Identify whether there are any salient zoning regulations such as historic district designation
or minimum-lot size, and discuss how you think this may affect land and housing values.
• Document recent and expected developments in the neighborhood. What are your expectations regarding housing demand and supply in the neighborhood given the recent trends? Is
the neighborhood market at its peak? Is there any excess supply or unmet demand?
The Real Estate asset market: lessons from Real Estate finance
• Build a setup similar to the one for the Price Building presented in class. In the proforma you
should include a Year 0 and extend it until Year 5. You may also include Year 6 to calculate
Net Operating Income in case you plan to sell with an appropriate exit capitalization rate.
• To estimate potential gross revenues, you have to search for current rents in the neighborhood and multiply them by the number and types of units your property will have. You can
find out current available rents in Redfin, Zillow, Trulia and other similar websites. Many
of these websites also allow you to track past rental performance. This information can
be helpful to forecast neighborhood rents in the near future. Of course, your intuition and
expectations are fundamental to forecast rents.
• To estimate operating expenses you do not need to provide extensive details. Include three
or four categories you believe are relevant and you may combine several other items into
‘Other expenses.’ You should also provide estimates of property taxes (perhaps based on
assessed values) and insurance fees. You need to justify how you are inflating expenses over
time.
• You may or may not decide to incur capital expenses or repairs. Of course, capital expenses
may positively affect the revenues and resale value.
• Regarding financing you will need to determine how much leverage you plan to use and
the cost of debt. Many websites provide information on mortgage financing for different
types of properties. You should determine the length of the loan and the annual debt service
that you can afford. Keep in mind the amount of equity you have in order to estimate your
loan to value (ltvs greater than 70-75% are not easy to obtain, especially for inexperienced
investors).
• Determine your discount rate (i.e., what is your opportunity cost of capital? Or what would
be the second best alternative to invest your money?) This is not a simple decision to make, so
I expect a sound explanation on your chosen discount rate including the role that opportunity
cost, inflation and risk play.
• Calculate the Net Present Value (npv) and Internal Rate of Return (irr) of your investment.
Complement these measures of value with financial ratios that you consider appropriate.
Interpret what these indicators say and examine whether they show some leve of consistency.
2

Purchase answer to see full
attachment