Real Estate MBAs : Academia Makes Imprint on Field
These kids want to make deals. But not just any deal--they want to make real estate deals.
With their real estate master of business administration degrees in hand, they are coming out of Penn, Berkeley, MIT, UCLA, Northwestern and other universities around the country with one thing in mind: building and financing development.
It’s impossible to predict whether this year’s class of educated real estate upstarts has in its ranks the likes of retail-center baron Jim Rouse or Manhattan high-rise czar Donald Trump. Nevertheless, it’s a sure bet that this new wave of real estate entrepreneurs will have a collective, if not individual, impact on our built environment.
“They come to these specialized schools to learn how to create buildings and design whole communities. This isn’t training to sell single-family homes,” Richard Peiser, Texas developer and Southern Methodist University professor, says.
Negotiating Several Deals
They are a sophisticated assortment of students who talk the real estate deal-making language with intensity.
For example, UC Berkeley second-year MBA Michael Torres explains his decision to pursue a job with Prudential’s Mortgage Capital Group over employment with a large office developer as a choice between “transaction-oriented” deal making versus “project-oriented.”
Translation: Instead of following one housing or office development through the process, he wants to be involved in negotiating the creation of several deals at once.
A few schools have had a real estate program for decades. But it didn’t become popular until real estate began to play a more important role in the economy. Until 15 years ago, the value of stock equity was greater than all of the value of real estate.
But in the 1970s, it went from being a niche in the gross national product to becoming a bellwether.
Field More Complex
“As real estate came out of the back room, so did teaching it,” Bob Edelstein, co-chairman of the University of California Center for Real Estate, says.
“The graduates are going to work for lenders and developers, doing cash flow analysis; for the public sector, coordinating redevelopment projects, and for themselves, by starting up their own brokerage firms,” Bill Weaver, professor at Central Florida University, says.
The professionalization of the trade took off when “people began to realize that real estate was getting more complex and that there were not enough trained people,” he added.
Criticism that the real estate MBA is an unnecessary and blue-sky academic exercise is dismissed by faculty, students and--most importantly--employers.
Year after year, mega-developer Trammell Crow hires MBAs from Stanford, Harvard and other top business schools. The formula has made the company--as well as many of the MBAs--a fortune.
And even the schools with a reputation for a more analytical approach defend their program.
“Real estate is going through constant change. What we recognize today as truth won’t be true tomorrow,” Berkeley’s Edelstein says. “Therefore, we are doing a disservice to our students if we make it practical only for today’s realities. They have to be flexible, like the world they will be working in.”
Despite their eagerness to jump into the pit of a deal, the students also have a long-term view of the trade-offs. “I have enough time left in my career to learn the practical; what I need now is the fundamentals,” says second-year Berkeley MBA student Andrew Murphy, who begins a job this summer in the construction loan department of First Interstate Bank.
In large part, turning out real estate wizards is a response to industry’s need for better-trained employees. Everything, from building a house to making a mortgage loan, is more complicated and requires a sophisticated work force.
But inside the ivory walls of academia, no one seems to agree on what is the best way to teach it.
Ignoring the Trend
Some top MBA programs like Harvard’s and Stanford’s have decided to ignore the trend--almost dismissing it as a “fad.” They point out, however, that along with getting a few specialized courses in real estate, their graduates are prepared to someday run almost any business enterprise.
And when it comes to top jobs, the students are grabbed up by employers from all types of industry--including real estate.
“We gave up on degrees by industry a long time ago,” says Kirk Hanson, professor at the Stanford Business School. Similar to Stanford, many schools don’t offer MBAs in specific industries. Instead, they offer a degree in marketing, accounting and finance.
Harvard MBA Olena Berg regretted not having a more specialized degree when she became vice president of Gerson Bakar & Associates and manager of the firm’s vast inventory of rental property. But now, as president and chief operating officer, she appreciates her Harvard education and applauds their “management focus” and “overview” approach.
When choosing a program, students should consider where they want to land after graduation, says noted real estate consultant Stephen Roulac. He gives Harvard and Stanford high marks for turning out managers, and credits the more specialized MBA program such as Berkeley’s with putting out the professional staffers.
New Development Degree
But even schools with a real estate emphasis are finding a general approach to real estate education may not be specialized enough. Consequently, they favor one side of the business, whether it’s development, mortgage finance or land planning.
MIT’s new, one-year master’s in development degree is the first of its kind. It focuses exclusively on the development side of real estate, drawing on the expertise of four departments: business, architecture, engineering and planning.
“Most traditional MBA programs don’t teach students about laying sewer lines and roads, or drawing up a site plan; but if you want to develop today, you had better understand some of these issues,” says James McKellar, director of the MIT program. He said Columbia, USC and Texas A&M; will soon offer master’s in development.
Peiser, the SMU professor and developer, is the incoming director of the new USC Real Estate Center for Master Programs.
Other schools, such as UC Berkeley and the University of Pennsylvania’s Wharton, have carved out a niche in real estate finance. The University of Wisconsin and University of North Carolina have become experts in land planning, and Central Florida University will soon be offering an emphasis in corporate real estate management.
Spotting a Good Deal
Some experts predict that many of the new real estate programs will not last.
One measure of their longevity is student interest, but their ability to generate resources and make a commitment to research is also very important. Several universities use private and public funding for the establishment of real estate research centers that put out reports and collect data on the market.
But according to many real estate experts, formal college training has little to do with one’s ability to spot a good real estate deal.
Experience, willingness to take risks and common sense may be more important. “The main advantage of an MBA is that you are a few years older, which means more maturity and experience,” says Preston Butcher, president of Lincoln Property Development Co.
Feels ‘Good Deal’
There may be a more intangible skill that comes into play: the developer’s intuition. “There definitely is a sixth sense,” says Gerson Bakar, chairman of Gerson Bakar & Associates, who pioneered the concept of garden apartments and built more than 20,000 apartments.
“When you see a good deal, you can feel it. I pass up a lot of proposals that look good on paper because I don’t have a good feel for them. Some people have it and some don’t.”
Bakar never has used a market study to test the feasibility of his projects but concedes that it is impossible to define the successful developer’s “sixth sense.”
Not everyone buys into the idea of a gut feeling about what will be a worthwhile development.
“The intuitive is overblown,” says William Zucker, director of the new Wharton School of Real Estate.
He says the successful developer is less of a seer than a quintessential entrepreneur. “They have a firm belief in themselves and can tolerate all kinds of ambiguity.”
Trial and Error
The entrepreneurial profile includes skills earned from trial and error in the marketplace, he says. But more important, “they know where and how people want to live and work--they know the market. Ultimately, development is a people business--getting people to move into your buildings.”
“Occasionally I’m called creative and intuitive,” Butcher says. “But that has nothing to do with it; success comes from many years in the business.”
He adds that “a few pros like Gerson Bakar probably have the ‘sixth sense’, but most developers have such big egos that they think they are intuitive, when they really aren’t. You need common sense, logic and a willingness to learn from mistakes.”