Published on

1 Comment
  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide


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