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Transcript

  • 1. The Real Estate Industry For Kellogg MBAs
  • 2. The Real Estate Industry
    • Why real estate?
    • What types of companies do MBAs traditionally join
    • What are the roles within those companies?
  • 3. Why real estate?
  • 4. Real estate is a huge part of the U.S. economy.
    • Comprises nearly 15% of GDP.
    • Employs more than 8.4 million people.
    • More than 68% of all Americans are homeowners.
    • Real estate indices have outperformed S&P and NASDAQ over the last 10 years!
  • 5. Some of the wealthiest people in the world earned their fortunes in real estate.
    • 25 of the Forbes 400 (U.S.) earned their fortune in real estate.
    Donald Trump, $2.5B Leona Helmsley, $2.2B Sam Zell, $2.1B                                                 
  • 6. And some real estate moguls are a little closer to home. Earl Webb ‘81 CEO of JLL Capital Markets Sheli Rosenberg Equity Group Investments Penny Pritzker Pritzker Realty Group
  • 7. Fame and fortune aside, real estate offers. . .
    • The opportunity to shape the communities that we live in.
  • 8. By realizing your entrepreneurial visions...
  • 9. And making the world a better place.
  • 10. What types of companies do MBAs traditionally join, and what are the roles within those companies?
  • 11. Real Estate jobs for MBAs typically fall into three general categories.
    • Finance and Investments
    • Operations
    • Development
  • 12. Finance and Investments Introduction
  • 13. Most people think of buying a home when they think of real estate investments.                   
  • 14. And in fact they’re right – most real estate is in non-institutional hands. Total U.S. Real Estate is worth $4.58 Trillion.
  • 15. But MBAs usually work with larger, institutional investments.
  • 16. Real estate investments consist of investors, sellers, and those trying to match them up.
  • 17. Real Estate offers a wide range of risk-return levels for the investor.
  • 18. Investors hold either equity. . .
  • 19. . . .or debt.
  • 20. Finance and Investments Who are the investors?
  • 21. Pension Funds
    • 3%-6% of portfolio in real estate
    • Tend to hold “core” properties
    • Both debt and equity investing
    • Usually outsource their real estate investing to an investment advisor
    • Ex. – TIAA-CREF, PSERS, CALPERS
  • 22. Private Equity Funds / Opportunity Funds
    • Seek high risk / reward
    • Often attached to investment bank
    • Principals in fund invest ~20% of their own money in complex waterfall structure
    • Perform acquisition, management, and disposition of assets
    • Usually ~3-5+ year time horizon
    • Deutsche Bank, Whitehall (Goldman), Transwestern, Walton Street, MSREF, GE Real Estate, etc.
  • 23. Real Estate Investment Trusts (REITs)
    • Government-sanctioned entity type
      • Derives most of its income from leases rather than fee income
      • Distributes most of its income as dividends
      • Is not taxable at a corporate level
    • Own a portfolio of real estate assets, usually in a particular sector
    • Usually a public security
    • Equity Office/Residential Properties, General Growth, Simon, etc.
  • 24. Investment Advisor
    • Advise pension funds on their overall allocation of real estate funds
    • Do not invest their own funds; earn fees based on assets under management
    • Perform property acquisitions, asset mgmt, and disposition based on investment strategy
    • Sometimes manage their own funds
    • Ex. – RREEF, Heitman, SSR Realty Advisors, AEW Capital Management
  • 25. What jobs are available at a real estate investor?
  • 26. Equity / Debt Investments (acquisitions):
    • Analyze potential investments
      • Pull together all relevant data. . .
        • Engineer’s reports
        • Market research
        • Credit-worthiness of tenants
        • Lease terms
      • And then do a lot of spreadsheet modeling
      • Perform site visits to kick the tires
      • Work out terms of the deal
      • And finally sell, sell, sell the investment
  • 27. Asset Management
    • Pick up where acquisitions people leave off
    • Monitor performance of asset
    • Perform budget-to-actual analysis
    • Interact with property management regarding significant issues
    • Analyze potential re-positioning, capital improvement, and disposition of assets
  • 28. Market Research
    • Collect tons of data on sectors or geographic markets
      • Vacancy rates
      • Rent per square foot growth
      • Employment statistics
    • Synthesize data and produce reports on trends in different markets
    • Data forms a backbone for investment decision-makers
  • 29. Investment Advisory
    • Perform research on macro-economic trends
    • Allocate client’s portfolio along a variety of variables
      • Geography
      • Product type (residential, office, industrial)
  • 30. Appraisal
    • Use three separate approaches
      • Cost method (replacement cost)
      • Sales-comparables method
      • Discounted cash flows (our favorite)
    • Produce report that concludes on the value of a property or properties
  • 31. Finance and Investments What companies work in capital markets?
  • 32. Investment / Commercial Banking
    • Perform work at a portfolio or corporate level, rather than asset level
    • Concerned with finance first, real estate second
    • Advise real estate companies on optimal capital structure and capital raising
    • Match investors and those seeking capital
    • As associate, perform spreadsheet analyses and work like a dog
  • 33. Investment / Commercial Banking
    • Mergers & acquisitions
    • Debt & equity underwriting
    • Syndication, securitization
    • Work for fee income
    • Advise at corporate rather than asset level
    • Ex. Goldman Sachs, Lehman Bros., Morgan Stanley, Deutsche Bank, KeyBank, Bank of America
  • 34. Equity / Debt Analysis
    • Typically work at a Wall Street bank
    • Analyze publicly traded equity and debt
      • Issue quarterly reports on earnings and company performance
      • Conclude on a rating, “strong buy”,”hold”, etc.
      • Serve as an expert to investors on specific real estate companies
        • REITs
        • CMBS markets
        • Real estate operating companies
  • 35. Real Estate Operations
  • 36. Operations
    • Closest to the asset.
    • Responsible for day to day running of the business of a building.
    • This is the greatest source of return once the asset has been purchased.
  • 37. Real Estate Operating Companies
    • Usually operate but do not own assets
    • Real estate based businesses like parking, storage, retirement communities, mobile home parks, car washes, etc.
    • Ex. – InterPark, StorageUSA, etc.
  • 38. Property Manager
    • Manage buildings on a day to day basis for owner
    • Receive fee income, sometimes incentive-based
    • Oversee cleaning, maintenance, repairs, leasing, budgeting, accounting, and any tenant needs and amenities
    • Ex. Cushman & Wakefield, Colliers, Lincoln, etc.
  • 39. Tenant Representation / Consulting
    • Identify client space needs (buy vs. sell, lease vs. own, etc.)
    • Search for optimal solution by negotiating with leasing agents
  • 40. Leasing Agent
    • Paid by commission
    • Try to sell space to potential tenants
  • 41. Hybrid / Full-Service Firm
    • Many real estate firms combine several of these functions
    • Synergies between investments, development, leasing and property management, etc.
    • Ex. - Jones Lang LaSalle, Tishman Speyer, Trammell Crow, Insignia CB Richard Ellis, Transwestern, Duke, etc.
  • 42. Development
  • 43. Developer
    • Originate project
    • Acquisition, due diligence, entitlements
    • Raise capital; often have little or no money in the deal
    • Manage design, permitting, construction
    • Perform initial sales or leasing
    • Can also work as a project manager for a fee
    • Ex. – Hines, Hammes, Tishman Speyer, Opus, Higgins, ProLogis, Centerpoint, Alter Group, Rise Group, etc.
  • 44. Community Development
    • Some developers choose to develop in low-income areas
    • Enterprise zones, TIFs, Empowerment districts
    • Community lending requirement = opportunity
    • Work with urban planners, city government
  • 45. Further Reading. . .
    • The Real Estate Game by William J. Poorvu
    • Urban Land Institute membership
    • Various websites such as GlobeSt.com
    • http://www.lendleaserei.com/LLREI/FreeForm.nsf/wContent/link0?OpenDocument
    • Check out companies on the web
    • Take Prof. Lys’ and Pagliari’s classes
    • Talk to those with industry experience
    • Attend mock interviews on Feb 4

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