Citation
French, N. (2012), "Real Estate Finance and Investments: Risks and Opportunities", Journal of Property Investment & Finance, Vol. 30 No. 1, pp. 99-100. https://doi.org/10.1108/jpif.2012.30.1.99.1
Publisher
:Emerald Group Publishing Limited
Copyright © 2012, Emerald Group Publishing Limited
Sir Winston Churchill[1] once said of the USA and the UK that they were “two countries separated by a common language”. I have seen this manifestation as fact on many occasions when visiting the USA. Things are simply different there.
Having taught in the UK and the USA (as well as guest lecturer across Europe and Australasia), I am constantly amazed at how teaching styles differ from country to country. In the UK we provide detailed weekly handouts and our lectures are supported by recommended texts but as supplementary reading to augment the detail of the lecture. With references to different texts at different times according to the lecture topic. When I taught in the USA, I tried to replicate this model and I had an uprising from the students. They wanted (and could not live without) a core text for the module and wanted (only) readings and assignments linked to that textbook!! It is not that one system is better or worse than the other, but they are different and it is that difference that makes this review ambiguous.
My starting point is quite simple. I like this book. I like the writing style of the author and I like the insights and practical applications that it proffers throughout. I like it because it challenges the students to think about the topic and not to simply “repeat”; a trap into which many other US texts fall. Indeed, if I were teaching in the USA again, I would strongly consider it as my core text. I would probably reorganize the chapters to fit into an exposition of the topics that fits more into my view of the development of various theories and understandings but, if I ever wrote a textbook, I am certain that Peter Linneman would want to reorganize my chapters for the same reason.
The book is divided into 21 chapters supported by various supplements and prerequisites dotted around the text at the relevant point or contained in the appendices. With all due respect to the main chapters it is the supplements that lift this text out of the ordinary. The majority of the writings are taken from various editions of the Wharton Review either authored or co‐authored by Peter Linneman. These are great at adding flesh to the bones; they take the fundamentals discussed in each chapter and place the theory in context. As I said, this makes the student think, as sometimes (and maybe often) theory and practice are at odds with each other.
The main chapters are:
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Chapter 1: “Introduction: risks and opportunities”.
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Chapter 2: “What is real estate?”.
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Chapter 3: “The fundamentals of commercial leases”.
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Chapter 4: “Property level pro forma analysis”.
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Chapter 5: “Financial modeling”.
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Chapter 6: “Real estate due diligence analysis”.
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Chapter 7: “The use and selection of cap rates”.
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Chapter 8: “Development pro forma analysis”.
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Chapter 9: “Development feasibility analysis”.
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Chapter 10: “Real estate company analysis”.
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Chapter 11: “Real estate bankruptcy basics”.
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Chapter 12: “Should you borrow?”.
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Chapter 13: “The use of debt and mortgages”.
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Chapter 14: “Commercial mortgage backed securities”.
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Chapter 15: “Ground leases as a source of finance”.
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Chapter 16: “Real estate exit strategies”.
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Chapter 17: “Real estate private equity funds”.
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Chapter 18: “REITs and liquid real estate”.
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Chapter 19: “Corporate real estate decision making”.
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Chapter 20: “Real estate cycles”.
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Chapter 21: “There are a lot of right ways to do it”.
So, would I recommend it in the UK? Unfortunately not. And that is the ambiguity of this review. It is a great book but it is too US centric to cross the pond. I have long learnt that the US model for valuation is driven by too many externalities (tax breaks, allowances, etc.) that do not translate to Europe. Likewise, the use of debt and the secondary mortgage market leads to a different analysis of property risk between the countries. It is odd. Everything is the same and yet everything is different. This probably explains why US texts do not sell in the UK. The RICS stated to sell texts from the Appraisal Institute in their bookshop in London. Initially sales were favourable but I am now told that they have fallen back extensively as readers realise that their application in the UK is tenuous.
So I return to my opening quote. We are separated by the things that seem the same. If you are in the US buy this text, if you are in Australasia, there are probably enough similarities to make the book worthwhile but if you are in the UK or Europe and you are wanting a text for students, unfortunately this is not it.
Notes
This is a quote that is accredited to two authors in equal measure; Winston Churchill and George Bernard Shaw.