Saturday, February 24, 2018

I've seen the future of the commercial real estate industry....

Some of you may remember then Rolling Stone magazine contributor Jon Landau's famous line after seeing Bruce Springsteen perform for the first time.  "I've seen the future of Rock 'n Roll and his name is Bruce Springsteen."  Jon eventually became Bruce's long-time manager and friend.

Well, each year, around this time I get to experience, first-hand, the future of the commercial real estate industry and they are the students in the graduate real estate programs.

Two weeks ago teams listed below competed in the University of North Carolina, Kenan-Flagler Real Estate Case Competition in Chapel Hill, NC (a 3 ½ hour drive for me from Asheville).

I was fortunate to be asked to be one of the judges.  I’ve served in this capacity a number of times before and it is always both so interesting and a real treat.  The treat is to get to meet a number of first and second year graduate students who are passionate about the commercial real estate industry.  Many of these students have already had jobs in the industry (or another industry) and made the decision to invest two years to get a real estate MBA.

The schools represented (in alphabetical order as I know someone very competitive would ask me why they're listed this way!):
  • Columbia University
  • Duke University - Fuqua
  • Georgetown University - McDonough
  • New York University  - Stern
  • Northwestern University - Kellogg
  • Rice University - Jones
  • UCLA - Anderson 
  • University of California (Berkeley) Haas
  • University of Chicago - Booth
  • University of North Carolina - Kenan-Flagler
  • University of Pennsylvania - Wharton
  • University of Southern California - Marshall 
  • University of Texas - McCombs
  • University of Virginia - Darden
  • University of Wisconsin - Madison

Dave Hartzell, who heads the real estate program at Kenan-Flagler, Susan Drake and Jim Spaeth put on a great event (although Susan does most of the heavy lifting!).  It’s been a wonderful experience to not only see how smart these students are but how well they present themselves - although, like everyone, they can use some presentation coaching 😉

The actual competition took place a week ago Friday. Thursday night there’s a networking / dinner event.  The funny thing about that event relates to the judges not being allowed to know the names of the schools the teams represent and therefore are not allowed to have a ‘normal’ conversation – Where are you from?  What school do you go to?  What year are you in?  Even one of my regular questions - "Where did you grow up?" could be treading on thin ice.  However, I encourage the students to ask me questions – ask all the judges questions about themselves – and get to know their peers. it’s a great networking opportunity for them and for us but particularly for the students as they are the next generation of passionate commercial real estate professionals who, one day, down the line, will be running the industry.

So, what do we talk about?  Well, Liz and I coach students (as well as people who were once students and are now into their careers in the commercial real estate industry) on such things as:
  • How to make a good first impression?
  • How to engage someone in a conversation (hint: it’s not talking about yourself!).
  • How to network.
  • How important it is to not hang out with your teammates (work colleagues) at a networking event. 

I encourage the students to try to meet as many of the judges as possible as we all come from different facets of the commercial real estate industry and...hello, when they graduate, they’ll be looking for a job.  Many of those second year graduate students at the competition are in active job search mode right now.  That advice, about not hanging out – at least too much – with people you work with, or know, is good advice for all of us attending an industry event.  While it may feel more comfortable to spend time catching up on things with those you know (and love), you lose out on a real opportunity to meet new folks and, as my sons and I regularly remind each other, “You never know.”

A few suggestions for students in situations like this (when more senior commercial real estate people are in the room with you):
·      Approach them – they’re approachable
·      Talk with them – ask them about themselves (people love talking about themselves)
·      Ask them to exchange a business card with you – take advantage of this opportunity
·      Have a simple answer to the question: What do you want to do when you graduate? 

The development case chosen for the competition was, as usual, not an easy one. This time it was a real deal and complex situation with a long history - including lawsuits.

The creativity of how to handle the project design, the fact that the two buildings were both on the National Register of Historic Places and the requirements of the current land owner, who is seeking a development and financing partner, was challenging for the students. Hey, when I read the case it was challenging to me although my conclusion was that I would not go near this deal with a ten-foot pole.  However, the students did not have that option. 

Now, knowing the deal will make it interesting to follow the progress and see what actually happens.  I have a feeling that some of the suggestions made by the student teams will be incorporated into the final project.

Congratulations students – well done!

Oh, you were wondering who won the competition?

First place:  Kenan-Flagler (truly a coincidence as they were the host team)
Second place:  Wisconsin – Madison
Honorable mention: UCLA - Anderson
Honorable mention: Rice - Jones

My long-time industry friend Andy Herz, the highly-regarded real estate industry attorney sent me something the other day and there are parts I’d like to share with you that resonated with me.  It was about mentoring and referred to a person that I didn’t know of:  Bill Campbell. Bill died in 2016 and, as happens too often, some of the great things you find out about a person occurs after they are gone.  I’ve taken the liberty of paraphrasing from an obituary on Bill – and adding some of my own comments (what else is new?).

Bill Campbell, a former CEO and chairman of Intuit and a longtime Apple board member was better known simply as "Coach" by venture capitalists, tech executives and investors throughout the industry, and remembered for the mentoring, advice and eminence grise role he played to some of tech's biggest names, including Google's Eric Schmidt, Apple's Steve Jobs and Amazon's Jeff Bezos. He had become something of a Silicon Valley consigliere. (SF Note:  I had to look up ‘eminence grise’:  a confidential agent; especially one exercising unsuspected or unofficial power.

I first heard the term ‘consigliere’ in The Godfather movies (I recently watched Godfather I and II - what great movies), and thought I knew what it meant but I just looked it up: a consigliere is an advisor or counselor to the boss, with the additional responsibility of representing the boss in important meetings both within the boss's crime family and with other crime families. He is a close, trusted friend and confidant, the mob's version of an elder statesman and an advisor to the boss in a Mafia crime family, and sometimes is his 'right-hand man'. In some depictions, he is devoid of ambition and dispenses disinterested advice. By the very nature of the job, a consigliere is one of the few in the family who can argue with the boss, and is often tasked with challenging the boss when needed, to ensure subsequent plans are foolproof.”

Campbell was careful not to take credit for his work, even while industry leaders spoke of Campbell "as if he's some kind of profane cosmic mash-up of Oprah, Yoda and Joe Paterno."

If you want to know about being a mentor, there was no better mentor than Bill Campbell. He had an amazing ability to very simply and undeniably give people confidence in themselves.

One Silicon Valley CEO said,"I didn’t call him because he would have the answer to some impossible question. I called him, because he would understand what I was feeling 100%." 

What a wonderful legacy, especially in a world where too many people are so self-centered.  The attributes of the “Me” generation continue, possibly even expanding, which is sad.

Thanks for sharing this Andy!

Has Spring sprung?  The North Carolina Arboretum this morning.

Friday, February 23, 2018

A friend who has made a difference in the commercial real estate industry: Gary Koster

Gary recently retired from Ernst & Young (E&Y).  He had been the managing partner of real estate transaction services.  Prior to joining E&Y Gary was the head of real estate and financial products at Arthur Andersen.  Gary continues his board involvement at Phipps Houses. Phipps Houses is the oldest and largest not-for-profit developer, owner, and manager of affordable housing in New York City. Its social services affiliate, Phipps Neighborhoods, provides children, youth and families in low-income neighborhoods the opportunities they need to thrive through comprehensive education and career programs, and access to community services. Together they are changing lives in New York City.

Gary and I met a number of years back when he moderated a panel at an industry event.  He did a great job and I said, ‘Hey, I’d like to meet this guy.”  And that started us off on a friendship that has weathered a number of industry ups and downs.  The more I got to know Gary the more I learned how much he loves and appreciates people. He has been a mentor to countless people as they grow in their financial services industry profession.  Gary is also one of my mentors.  Gary is a connector and someone who loves bringing people together.  He has dedicated substantial time to not-for-profit work and is simply a special individual.

Q. How did you get your start in the commercial real estate industry?

A. I started my career at Arthur Andersen working with clients in various industries.  After my first real estate company engagement, I knew I had found my passion.  I got hooked on the transaction environment and was fortunate to have worked with a number of great real estate companies. Clients like Tishman Speyer Properties and Zeckendorf and Co. were early influencers. 

At Andersen I was in a position to ask probing questions to senior executives early in my career.  “Why are you a net buyer/seller in this market?”  “Why is your capital stack organized this way?”  “Why do you believe that interest rates will move up or down and how does this impact your cap rate assumptions?”

As a learning ground, it couldn’t be beat.  I was thrilled and energized to scan the New York City skyline and recognize I had inside knowledge of the motivations behind the trades that gave rise to the landscape. The real estate business is immensely interesting and to this day I am still growing/learning from that association.

Q. What advice would you give to people who have been in the industry a short time or a student looking to get his or her start?

A.  For young people new to the business my advice is ‘Choose broad experience over narrow advancement early in your career.’  If possible, get a foundation in each part of the real estate business; acquisitions, property/portfolio repositioning, development, leasing, financing and dispositions.  The broad foundation will give you perspective that will pay dividends throughout your career in any aspect of the business you decide to focus.
For those that have a few years under their belt, always remember, “Trees do not grow to the sky.” I remember hearing that phrase my second year in the profession yet witnessed some of the most intelligent real estate practitioners of the day get caught short in a market cycle.

Real estate markets are local, dynamic and perpetually moving.  Real estate practitioners must stay nimble, recognize the shifting macro and microeconomic landscape, anticipate shifts to property performance and have contingency plans in place should results not match up to underwriting assumptions.  Never become emotionally attached to an investment decision.  Assess the market, re-underwrite your property/portfolio objectively and make the tough decisions as needed.

Q.  As you look back on your career is there something you wish you had done differently?  If so, what?

A.  I retired from the real estate advisory profession this past year and have had a bit of time for reflection.  Have I made mistakes throughout my career?  Most certainly, but I would not undo them, even those that cost me dearly.  It’s the mistakes and setbacks that give rise to the greatest opportunity for growth.  We learn so much more from our failures than our successes and that experience is rarely transferrable.

My advice to young professionals/entrepreneurs: Do not be afraid to take a risk.  Taking risk is an inevitable part of working in the real estate business.  Don’t be paralyzed by this dynamic.  Be thoughtful about the risks you take, weigh carefully the alternatives and ensure you are getting appropriately compensated for the risks you are underwriting with both your capital and your career. 

Wednesday, February 21, 2018

A friend who has made a difference in the commercial real estate industry: Michael O'Brien

Michael O’Brien’s career in real estate has spanned nearly 40 years, the vast majority of which was in client relations and marketing. Over the years, Michael established and strengthened many mutually beneficial relationships with institutional clients, prospective clients and the consultant community. He, both personally and through the teams he led, raised substantial capital for a broad range of products and strategies. These have been in various formats including open and closed-end commingled funds, separate accounts, and club funds all across the risk/return spectrum – from core to opportunistic. He was also instrumental in the creation and launch of new investment products and strategies.

Michael successfully built and managed teams of real estate client relations and marketing professionals.  He has held the positions of real estate product manager, real estate marketer, marketing and sales region head, senior real estate client relations manager, client portfolio manager, and head of global real assets client relations. Michael is currently in retirement enjoying his time with friends and family, especially his 10 - year old daughter, and pursuing personal interests.

Michael and I met at the New York City offices of what was then Lend Lease, which had acquired Equitable Life Insurance Company’s real estate investment management business. It was sometime in the late 1990’s.  I had scheduled a meeting with one of his colleagues and she walked me around the office to meet a few other folks – one of those folks was Michael O’Brien.  When we really got to know each other was after Michael joined Joe Azelby’s team at JPMorgan and they became a sponsor of The Institutional Real Estate Letter.  As the lead client service person I interacted with Michael and the team and attended a number of their annual investor conferences.  As the years went on he became a good and trusted friend and voice of reason for me.

Q.  How did you get your start in the commercial real estate industry?

A.  As is the case with many people, I got my start in real estate through happenstance. My first job when I graduated Rutgers (with a BA in Economics) was with the Social Security Administration. While there, I was selected to join a special task force with the GSA (General Services Administration) to help obtain additional office space for the agency in the New York metro area. Through a relationship I formed during my tenure there, I was offered and accepted a position at Equitable Life in its corporate facilities group helping with the various tenant leases for a number of the firm’s businesses across the country. My role was to work with the internal business groups to identify their space requirements, work in concert with our design group to have the space built out to our specifications and negotiate the lease documents. I also sublet excess space as needs changed over time. 

After having worked in this capacity for a couple of years, I decided to pursue the investment side of real estate rather than the user side. Equitable had a strong real estate investment operation and through internal job postings and interviews, I landed a position as an analyst in the investment sales group where I worked on a number of very interesting property sales in NYC. At the same time, I pursued and obtained my MBA from Rutgers University at night with a concentration in marketing and finance, and took advantage of all of the real estate courses offered by the program.

Equitable also had a very strong pension investment division and among the asset classes they offered to their clients was real estate. I came to know the client relations and marketing people in the pension operations area, which led to my next job as the Real Estate Product Manager.  There I worked with the generalist client relations and marketing professionals as the specialist for our real estate offerings to pension funds.

Over time, the real estate group at Equitable became a separate subsidiary with its own dedicated client relations and marketing group. I took on front line client relations and marketing responsibilities with a geographic territory. By this time, I had decided that the client side of the business was the right place for me. In total, I was at Equitable / Lend Lease for 22 years, the last three of which were after Lend Lease had acquired the real estate business from Equitable. The vast majority of that time was on the client side of the business.

In 2000, I joined JPMorgan in their real estate group as a client relations marketing professional working with the JPMorgan generalist client advisors. Shortly after my arrival there, I was asked to take on management of the real estate client relations group. Over the course of my years at JPMorgan, the product offerings greatly expanded from a U.S. real estate focused core and value - add commingled funds and separate accounts platform primarily focused on U.S. pension funds, to a much broader global platform encompassing real estate investments in the U.S., Europe and Asia across the risk spectrum. The investor profile expanded and became more diverse to include U.S. pension funds, endowments and foundations, insurance companies, defined contribution plans, non - U.S. institutions and high net worth investors. Other real assets such as infrastructure were added and the group became a real assets group. The client relations and marketing team expanded as well, as did my management responsibilities, and became global with offices in the U.S., Europe and Asia. This platform growth kept me challenged and provided personal and career growth opportunities.

Q.  What advice would you give to someone who has been in the industry for a short time or a student looking to get his or her start?

A.  Get a sense of the many facets of the real estate business and determine which area is the best fit for you. Speak with people about the part of the business they are in and what they like and don’t like about it. 

Get an appreciation for the various disciplines and skill sets required on the investment and operational side… equity investing, debt investing, development, acquisitions, sales, asset management, leasing, property management, valuation, research, etc.

Get an understanding of the dynamics on the capital side. Where does the capital to fund real estate come from? Why is real estate an attractive asset class? What capital sources are attracted to it and why? What is the range of investing strategies on the risk/reward spectrum? What is important to each investor as they make their investment manager selections? How do they make these decisions…who decides, who influences, are consultants part of the process?

Know what you like to do and what you are good at. Are you more of a transactional person or a relationship person?

Build your knowledge base about the industry. Be active in an industry organization. Always be learning. Embrace change. It happens all the time.

Develop and practice your skill set…technical skills, communication skills, people skills, negotiation skills, management skills, sales skills, relationship skills, networking skills, listening skills…etc. They will help no matter which path you choose.

Q.  As you look back on your career, is there anything you wish you had done differently? If so, what?

A.  Nothing major. As I look back, I am very happy with my career. It was quite a journey from a task force assignment to obtain additional office space in the New York metro area to being a Managing Director at a pre-eminent Global Asset Management firm, leading a global team of real assets client relations professionals. I worked with good people in solid organizations. I helped clients achieve their investment goals and served them well. Could my career have advanced at a quicker pace? Perhaps. Could I have achieved more? Perhaps, but no regrets. If I had a chance for some “do overs”, I would spend more time outside my comfort zone and do so sooner — that is when the pace of personal growth accelerates.

I would also have tapped further into the knowledge, expertise and experience of the many talented people around me throughout my career.  I did gain a great deal from doing so, but with more concerted, ongoing attention to this, I could have benefited further.

Q.  Who have been the major influences on my career? Why? How?

A.  I have had the good fortune to work with many very talented, good people throughout the course of my career. I learned a lot not only from people more experienced and senior to me, but also from peers and the people who reported to me. I also learned from and was influenced by the clients, prospects and consultants and other industry professionals with whom I interacted.

Certainly a major influence on my career was the person who was a key reason behind me going to the client side of the business, Paul Dolinoy. Paul ran the client relations and marketing group that I was part of for many years at Equitable before he took on further senior management responsibilities.  I learned a great deal from Paul about marketing and sales. I learned how to put together and run a team, recognizing the unique talents each person brings to the table and getting the best from everyone.  Watching Paul in action re-enforced with me things I was already aware of such as the importance of proper preparation, strong communication and relationship skills and how to set goals and get results, all while having fun.

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