Real Estate Finance: Theory and Practice, Third Edition

Clauretie, Terrence M. , and G. Stacy Sirmans. Real Estate Finance: Theory and Practice, Third Edition. Upper Saddle River, NJ: Prentice-Hall, 1999, 584 pages. The scope of the book is as in-depth as the title implies. Real Estate Finance offers an upto-date, carefully documented review and thorough analysis on the theory and practice of real estate finance. It is a comprehensive text that covers every aspect of real estate finance with discussions, examples, and problem-solving demonstrations. However, the most impressive feature of this book is its attempt to examine the evolution of real estate financing markets, relevant financial economics theories, and recent empirical research findings in these areas. It draws a close link between real estate financing practice and theoretical foundations. Clauretie and Sirmans approach this text with extraordinary enthusiasm, knowledge, skills, and hard work, making the book a unique collection of facts on theory, empirical findings, and historical events, as well as financial methodology. Users will find the new edition especially user friendly. The authors added more numerical examples and problems (e.g., on valuation of mortgage securities and CMOs (Chapter 11) and permanent financing of commercial real estate properties (Chapter 19) on various leasing topics). Their timely updates on various topics are noticeable. For example, the enhanced coverage of housing-related law and regulations included the 1997 Taxpayer Relief Act and is just what readers, and especially instructors, need. With the new edition, Clauretie and Sirmans present an ideal textbook for upper-level undergraduate and graduate-level (e.g., MBA programs) real estate finance courses. Because of the vast and well-documented facts it offers, this text can also be used as a resource book for research for financial economists or as a reference book for practitioners in real estate markets. The first fourteen chapters cover topics in residential real estate financing markets, and the next eight chapters discuss the concepts involved in commercial markets. In Chapters 2 and 3, the authors provide an intellectually stimulating review on economics and finance theories closely related to real estate finance. As a part of the introduction, these two chapters set the tone for the entire text: real estate financial markets are not isolated; rather, they are a segment of the capital market and follow the principles of general economics theories. These two chapters are extremely helpful especially for teaching undergraduate students who tend to think that real estate finance is just how to borrow through a mortgage loan. In Chapters 4, 5, and 6, the materials on different types of mortgages are presented. This type of material can easily become mired in technical matters and boring. But the authors take an unusual approach to deliver a thorough review of how and why the mortgages evolve under specific historical economic conditions and events. The discussions on the concepts of disintermediation and the tilt effect are excellent examples. Discussions of market dynamics and equilibrium are presented as Problems of Demand and Problems of Supply, which pinpoint the central issue on the emergence of alternative mortgage instruments. Being put in historical and theoretical contexts, the materials in these chapters are insightful and vivid. One significant contribution the authors make with this text is the coverage on housingpolicy-related issues in Chapters 8 and 9. Housing policies have a direct impact on real estate financial market structures and activities, but they are often overlooked in real estate texts. The truth is, professors would have to personally prepare for these materials without this book. Readers in fields such as urban economics and public administration can also be pleasantly surprised by the richness of this material and find it useful. Subsequently, the authors discuss the secondary mortgage market and the valuation of mortgage securities (in Chapters 10 and 11), mortgage underwriting and default-related issues (in Chapters 12, 13, and 14). …