Syllabus

Course Meeting Times

Lectures: 2 sessions / week, 1.5 hours / session

Recitations: 1 session / week, 1.5 hours / session

Prerequisites

Students should have a grounding in basic statistics.

Priority in enrollment is given to students in MIT’s Master’s Program in Real Estate Development.

Course Description

The real estate industry plays a crucial role in achieving the sustainable goals of cities and countries around the world. The building sector is a major consumer of resources and a key contributor to greenhouse emissions. The operation and construction of buildings account for more than 35% of energy use and nearly 40% of CO₂ emissions. Technology, climate science, and regulation have developed dramatically, inducing more real estate investors to put sustainability at the center of their investment approach, including discarding investments that present high sustainability-related risks and launching green and low-carbon investment products. In addition, the increased frequency of energy-consumption and climate-change related threats, such as rising sea levels, wildfires, heat waves, and local pollution is creating a new set of risks for real estate around the world. Such risks affect the demand, supply, and pricing in both real estate space and capital markets. Companies and investors are increasingly incorporating such sustainability risks into their business and investment strategies.

This course is designed for students who wish to gain deep insights into the tension and synergy between sustainability and the real estate industry. The course will answer four overarching questions: (1) Why does sustainability matter for real estate? (2) How can the real estate sector contribute to sustainability while keeping profitable? (3) What are the investment and market opportunities for sustainable real estate investments? (4) What is the role of sustainability for each key player in real estate markets (i.e. owners, tenants, regulators, and capital providers)? The lectures provide a combination of economic, business, and building design insights and tools that help students develop capabilities to understand the challenges and opportunities of sustainability in the real estate industry.

The course will provide a systematic framework to understand the most challenging issues in sustainability in the real estate industry. We will examine economic mechanisms, technological advances, business models, building design, and investment and financing strategies available for the different market players to promote sustainability in the building sector. We will discuss three major perspectives on sustainable real estate: (1) buildings as the basic physical assets of sustainable real estate, from green buildings to healthy buildings and climate-resilient buildings; (2) neighborhoods and cities as the context of sustainable real estate where individual buildings interact with the built environment, policies, and other urban systems; and (3) equity and debt investment vehicles at the portfolio level to finance sustainable real estate.

In this learning experience, students will build their knowledge and skills in the following areas:

Critical and systematic thinking: the ability to analyze sustainable real estate challenges and solutions in the intersection of space, asset, and financial markets, and to think ahead and to draw interaction between real estate and sustainability.
Using an economic approach to understand market mechanisms for sustainability-oriented innovations, and to quantify the risks of climate change to real estate markets and citizens.
Understanding the landscape of the sustainable real estate market and business, i.e., industrial regulation, technological frontiers, business models, and best practices: how does executing sustainability differ across different product types/asset classes, and how do the financial and design challenges and constraints change for office, retail, hotel, industrial properties?
Analytical skills: the ability to conduct analysis to support the evaluation of different sustainability strategies in buildings, and to estimate price differentials associated with sustainable attributes.

Course Organization

On the economics side, we will emphasize classical economic tools to think through and analyze the market structure and behavioral mechanisms of sustainable real estate. Teaching materials will cover the real estate space and capital markets, as well as the urban systems supporting the operation of the real estate market. The lectures will be complemented with a series of problem sets where students will learn how to implement the key tools to evaluate sustainable strategies in real policy environments. On the design side, we will cover the main design strategies at the building and city scale to achieve sustainability and climate resilience goals. On the business side, we will explore, through case studies and executive dialogues, what firms must do to succeed in achieving both business and sustainability goals. Students will learn through a hands-on approach to become more effective innovators and leaders and to use business as a driver for change.

Schedule of Topics

Course Requirements and Grading

The final grades are based on the following items:

Problem Sets (25%)

We will have two problem sets in total, and both are directly linked with the economic sessions of the course. They are both based on simplified real-world data and business cases. Students will need to apply the analytical framework and quantitative skills learned in class to support evidence generation and business decision-making. Each problem set will count equally toward the final grade.

All problem sets should be submitted electronically by 11:59 PM of the due date. Late submissions will not be accepted.
Students are encouraged to work in groups, but each student must complete and submit their write-up independently. Students should specify the names of students they work together with. We do not expect to see the same answers and codes in any section of the problem sets. Violation of this rule will be considered as an academic integrity problem and will be subject to MIT’s corresponding policies.

Business Case Assignments and In-Class Discussion (20%)

Effective business case class participation includes preparation, and making an active and constructive contribution to the class discussion. Students are expected to come to each class having finished the case reading.

Students need to prepare answers for each discussion question, applying economics learning to business case analysis and taking a position on the debate question. The answers need to be posted on the online discussion forum 24 hours before class.
For in-class contribution, both quantity and quality are relevant. We will be “cold-calling” students during class to contribute to the discussions. Class members who summarize, clarify, simplify, or suggest what else needs to be covered can make a valuable contribution. Focus on increasing the quality-to-airtime ratio of your contributions. We will evaluate your participation on a 1–3 scale: 1) voice; 2) opinion; 3) the impact of the comments, for example they were picked up by other students.

Midterm Exam (20%)

We will have an in-class, closed-book midterm exam in the seventh week of class. Students have 90 minutes to complete the exam. Calculators are allowed.

Final Project (25%)

The final project will be group-based and related to making investment decisions. The students will take the role of a PE fund general partner and the projects to be evaluated will be relevant for sustainability and climate resilience. All groups will pitch in the final class to present their evaluations. Please read the final project brief carefully for more details.

Class Participation (10%)

Students are expected to attend all lectures. And we highly recommend students to participate in guest talks and recitations. Absences for formal lectures will count against the in-class contribution grade. If you must miss a class, please let the teaching team know beforehand.

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Sustainable Real Estate