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Interview with Jaime Luque Associate Professor at ESCP Business School

Real estate is a highly competitive, yet very specific investment field. Orientation requires a versatile and complex knowledge which can be gained now in a five-day English-language course of BIB and ESCP Business School starting in late August. We talked to the head of the training, Professor Jaime Luque, about real estate finance and investment, as well as the course.

Is it true that investing in real estate is always a good idea? 

Investing in real estate can be good and not so good. As always, the success of an investment depends on the performance of the asset. In good times, assets do well and grow in value. In times of crisis, asset prices plummet. But real estate has unique properties that make it an important asset to keep in portfolio. Real estate is a good hedge against inflation and is usually a refuge in times of crisis (except for the 2008 Great Financial Crisis where houses where purchased with excessive leverage). It also provides a space to live and work. The three magic words for a successful investment in real estate are location, location and location. 

What are the advantages and disadvantages of real estate investments?

Real estate is by nature asset heavy but labor and management light, meaning that its value is very much tied to assets rather than any human or intellectual capital. Moreover, the laws that surround real estate and property rights facilitate project level financing. To a large extent real estate investment deals are still performed by small, local entrepreneurial firms and individuals. 

How financing affects the real estate market?

Real estate assets are extremely suitable for secured debt and other types of project-level financing as they are tangible, simple and transparent assets. If external investors don’t have much direct management control or lack expertise, project-level financing is a much more comfortable type of financing as they have more of a sense of what is going on. 

At the macroeconomic level, it’s important to keep a close eye on the amount of leverage in the real estate sector. If leverage is excessive, any small negative shock to the economy may trigger defaults and bring the economy into a recession.

What exactly is real estate finance and investments?

“Real estate finance” deals with the design and modeling of different types of mortgage debt to finance the acquisition of a real estate asset. Examples of mortgage debt are interest-only mortgage, constant-payment mortgage, constant-amortization mortgage, and adjustable-rate mortgage. “Real estate investments” is more about the modeling of the capital structure of a real estate asset. Usually, capital structures are complex and include senior debt, mezzanine debt, preferred equity, capital partner equity and entrepreneurial partner equity. Each has its own cash flows and yield. In the summer school we teach students how to put all these investments in a single Excel sheet to accommodate the different cash flows they are entitled to.

Turning to the course, how would you describe the cooperation between ESCP and BIB so far?

ESCP Business School and the Budapest Institute of Banking (BIB) have secured a long-term successful collaboration with the goal of providing cutting-edge education in the field of real estate in Central and Eastern Europe (CEE). The ESCP-BIB Summer School in Real Estate represents an extraordinary opportunity for professionals to deepen their knowledge and techniques in real estate finance and investments. The Summer School also provides students the opportunity to meet top executives and experts of the real estate sector in CEE. The first edition in June 2019 was a success with more than 20 students of different nationalities across Europe enrolled. Our goal is to become the most prestigious and well-known real estate summer school in Europe and beyond.

What will the participants learn at the end of the course?

  1. Learn to use Excel to undertake pro-forma analysis and practice the different methods of valuing a revenue generating property. 

  2. Understand the different mortgage types available to investors and learn how to design them.

  3. Calculate mortgage debt with a prepayment option.

  4. Master the best ways of refinancing debt.

  5. Recognize the role of debt within the real estate industry, as well as its benefits and risks.

  6. Learn how the different capital structures of real estate assets are determined and calculated.

  7. Learn how to calculate cash flows of real estate assets with varying capital structures and scenarios using real estate "waterfall" spreadsheets on Excel.

  8. Model sophisticated real estate “waterfall” spreadsheets with Excel for a variety of different capital structures and scenarios.

For those who are interested in working in real estate finance and investments, what kind of job opportunities are available?

Common job titles: Valuation Analyst, Development Analyst, Real Estate Big Data Analyst, Real Estate Investment Manager, Mortgage Broker.

Industries hiring: Institutional Investors and Investment Funds, Consultancy Firms, Real Estate Service Firms, Investment Banks, Real Estate Development Companies

To whom do you recommend attending the course?

  • Individuals with undergraduate degrees who are considering additional education in real estate finance or have an interest in exploring real estate as a professional area of interest.

  • Professionals with an MBA or other master’s degree who are ready to advance or change careers.

  • Master and MBA students who need an extra specialized certification as part of their curriculum.

 

Join our Summer School!