REAL ESTATE FINANCE FIN 3334/5334

1. REAL ESTATE FINANCEFIN 3334/5334 Professor David M. Harrison Fall 2009

2. What is Real Estate Finance? • Finance Defined – • Real Estate Defined – • Note: Real Property = • Real Estate Finance is…

3. Why is Real Estate Important? • Assets of “Developed Economies” – Year End 2002 • Residential Property: $48 trillion • Commercial Property: $14 trillion • Equities: $20 trillion • Government Bonds: $20 trillion • Corporate Bonds: $13 trillion • Total: $115 trillion • REAL ESTATE ACCOUNTS FOR OVER HALF OF ALL ASSET VALUE IN THE DEVELOPED WORLD!!! Source: The Economist

4. U.S. Security Market Size by Sector • Debt: • Commercial Paper: $2.2 trillion • Treasuries: $5.0 trillion • Agency/GSE: $6.7 trillion • Municipals: $2.5 trillion • Corporate/Foreign: $10.1 trillion • Bank Loans: $1.7 trillion • Other: $1.7 trillion • Mortgages: $13.5 trillion • Consumer Credit: $2.4 trillion • Total: $45.9 trillion • Equity: • Corporate Equities: $20.8 trillion Source: FRB Pub. Z1, Table L.4, 6/7/2007

5. U.S. Credit Market Debt by Sector Source: FRB Pub. Z1, Table L.4, 6/7/2007

6. The Environment of Real Estate Finance • Institutions: • Markets:

7. The Process of Financial Intermediation

8. Warm-up Exercise

9. Warm-up Exercise: Solution