Zell/Lurie Real Estate Center
Fall Members’ Meeting
Wednesday and Thursday, October 29-30, 2015
The Fall 2015 Members’ Meeting began with an exceptional dinner Wednesday evening
for Zell/Lurie Research Sponsors, Executive Committee members and special guests at
The Barnes Foundation, Philadelphia’s treasure. After dinner, they toured the collection
privately.
The daylong meeting on Thursday was at The Inn at Penn on the campus of the University
of Pennsylvania. That morning, during a continental breakfast, mentors met with their
student mentees, who signed up for the Zell/Lurie Career Mentor Program.
The new meeting format included four breakout sessions within the main four panel
discussions. Joe Gyourko, Nancy A. Nasher and David Haemisegger Director of the
Center, gave the State of the Center report, followed by a review of alumni and member
initiatives by Asuka Nakahara, Associate Director of the Center.
Panel one, Is It Really Different This Time? What Do Users of Real Estate Really
Want?, moderated by Asuka Nakahara, welcomed panelists Dan Cummings, Managing
Director of Real Estate, Harvard Management Company; Marilyn Taylor, Dean and Paley
Professor, The School of Design, University of Pennsylvania; Janice Madden, Professor
of Regional Science, Sociology, Urban Studies, and Real Estate, The University of
Pennsylvania; and Timothy J. Naughton, Chairman and CEO, AvalonBay Communities.
The trend over the last several years has been for renters and owners to settle in urban
areas, working in shared spaces and living in small apartments. The panelists agreed this
influx to the cities was fueled mainly by Millennials, those aged 20 to 35, and they
wondered what would happen to these architectural designs when this demographic
moves on to marriage and children.
“Needs and notions change,” said Naughton. “The notion of live/work/play is a concept
that has become blurred and anything from a space and design standpoint needs to
respond to that. Millennials are willing to make tradeoffs to have flexible spaces and the
amenities they want.”
Madden said the delay of marriage and parenthood has changed housing expectations
and desires. “Singles are buying,” she said. “But they’re more likely getting married in
their 30s, and there is a repositioning of what housing needs are as you get married and
have kids.”
Taylor explained that although architects and brokers expected the “micro unit” trend to
grow in New York City and elsewhere, it hasn’t taken off.
“Building micro units is nearly as expensive as building larger apartments because you
need to build common social areas,” Taylor said. “What is trending is shared space and
co-working that is tech-served and time-insensitive. In the short term, designing for
flexibility and for the experience—rather than for the building itself—is where the money
is to be made.”
Cummings agreed that there has been a change in how we all do our work. “There is a
need for less space and for downsizing,” he said. “There is a demand for creative office
space and an opportunity there.”
“For all of you who are trying to provide for the experience … part of the product is the
services provided. How might this continue to evolve?” asked Nakahara.
Each panelist agreed that the way to meet evolving demand is by continuing to provide
flexibility and convenience while staying up-to-date with ever-changing technology—by
understanding their clients and responding to what they want and need.
“Real estate will become the container for activity and will need to be productive, creative
and entertaining,” added Taylor.
The new feature of the meeting was the breakout sessions, with members sorted into
various cohorts. The plan is for these groups to remain together throughout the upcoming
meetings, to develop networking and support relationships.
For example, one cohort gathered for a discussion on How Technology is Changing the
Landscape of Commercial Real Estate: Leasing, Operations and Business
Intelligence, moderated by Brendan Fitzgerald Wallace, Founder, Grey Wolf, with
Justin Alanis, Co-founder and CEO, Rentlytics; Michael Mandel, Co-founder and CEO,
CompStak; Andrew Flint, Global Head of Business Development, VTS; and Riggs Kubiak,
Founder and CEO, Honest Buildings.
Wallace opened the session by asking, “The real estate industry spends very small
amounts on data and tech compared to others. Real estate hasn’t really changed, although
it is starting to. Why has it been so late in adopting? What’s happened to drive change?”
The panelists agreed that real estate is a complicated industry and requires nuanced
solutions when changing entrenched ways of conducting business.
“It takes people from the inside [each panelist began his career in real estate] to see an
opportunity and bring it out,” said Kubiak. “The rapid adoption of the Internet and use of
smart phones and the start of businesses like ours is what is changing things.”
The push to create interconnected business systems that can communicate is another
difference, said Flint, “and the fact that everyone is mobile and needs to be mobile means
that real estate technology is here to stay.”
Each business represented offers what Wallace called “enablement tech,” versus the
disruptive technology formerly promoted by Silicon Valley start-ups.
“These businesses help their clients do what they already do, just better. They use the
cloud or tech or analytics to help people do things better, and that requires industry
insiders,” Wallace said. “Once you sell it, how do you work with the owner to ensure the
team uses it?” he asked.
“I just asked brokers to do online what they were already doing offline,” Mandel
explained. “The key is going to those who have the need, and showing them how you can
make their work better.”
Alanis agreed. “You find a strategic way of selling the platform to those with the need,” he
said. “You show the site to those who need the data so that it becomes compelling to use
the software, and they will see that unifying everything is 10 times better than their
current workflow.”
The panelists all said they want to make their platforms easy for real estate practitioners
to use. Flint suggested that by bringing senior-level people on board, pushing automated
alerts and data within their portfolios, would help bring in others.
“It has to make their lives easier and we provide enablement across the board for
executives to get insight for those on the ground,” Flint added.
Wallace wondered about the unconventionality of getting current clients to invest.
All agreed, this strategy simply makes good business sense. Alanis said investing “makes
them more invested in the platform and provides a feedback loop. Real estate investors
want a good stable business to invest in and get a good return from.”
Kubiak said current clients who invest understand the nuances of the real estate business
and can help expand their business. “Those strategic investors can be powerful, especially
if they recognize what it takes to build a tech company in addition to real estate,” he said.
In answer to a question from the audience, Flint said he believes the “enablement tech
field” is in its early stages and has “barely scratched the surface. We’re starting to connect
to other systems now … not disrupting the industry right now, but when our systems start
to talk to each other, it will get interesting,” he said.
“And once the real estate industry starts to think that their business is built around
technology, that changes everything,” added Kubiak. “The real estate companies investing
early will have the advantage.”
Mandel added that, eventually, “Everyone will have access to the same information in
some way. Investors will get more creative and opportunistic, and that will require
transparency, creativity and accountability, bringing real estate pros to move to a higher
level.”
The Perspectives on International Event Risk panel was moderated by Jeremy Siegel,
Russell E. Palmer Professor of Finance at Wharton, with panelists Ronald Temple,
Managing Director, Lazard Asset Management; and Torsten Slok, Chief International
Economist, Deutsche Bank. Temple and Slok each presented a slide show detailing global
events that can impact the real estate industry or pose a risk to it.
According to Temple, real growth in the United States has been “impressive” since 2008,
“considering we’ve been dealing with de-leveraging, widening inequality and rising
regulation. Household net worth is 26 percent above the pre-crisis record … with almost
$100 trillion of household assets. We are still the richest country in the world.”
He continued, using charts and graphs, to illustrate that middle class balance sheets have
not yet recovered and the gap continues to grow between those with the most and those
with the least.
“The good news is that the recovery will broaden out to the middle class within the next
five years, which would imply an 11-year recovery,” he said. “We need 10.7 million new
jobs to return to the pre-recession number of jobs. I see no urgency for the Fed to raise
rates.”
Temple then discussed China, noting that China’s growth rate will be cut in half. Its
economy has changed from a manufacturing to a service-oriented economy and its labor
force has become less competitive.
“The country’s cheap labor helped grow the economy by bringing in foreign businesses.
As their wages went up, businesses went elsewhere. Even the interior of the country is
no longer inexpensive relative to many other countries, including Mexico, Thailand and
the Philippines.”
Temple said that pollution has grown, with unacceptable air quality and contaminated
soil. Land prices are high. That said, he doesn’t think China is “a disaster waiting to
happen.”
Torsten Slok then shared his views, along with a slide presentation. For the most part,
Slok agreed with Temple about the health of the U.S. balance sheet in relation to other
countries. He added that the U.K. is relatively advanced, adding his prediction that both
the dollar and the pound would appreciate.
China, however, offers a “fairly worrying picture,” even though the residential property
market is picking up. The government stepped in to keep the housing market afloat, and
their non-performing loan rates are lower than that in the United States. “The [Chinese]
government has things under control,” he said.
Corporate debt is up in China, Turkey, Chile and Brazil and that is important. Slok said he
is “watching it.”
The day’s capstone panel was Investing Your Own Versus Other People’s Money: Does
it Make a Difference Today?, moderated by Peter Linneman, Sussman Professor
Emeritus of Real Estate, The Wharton School, with Jack Chandler, Global Head of Real
Estate, BlackRock; Ron Pressman, CEO Institutional Financial Services, TIAA-CREF;
Harrison LeFrak, Vice Chairman, LeFrak Organization; and Jonah Sonnenborn,
Managing Director, Head of Real Estate, Access Industries.
This panel was designed to explore the different real estate investment approaches taken
by two men responsible for investments made on behalf of two private families and by
two who manage the funds of millions of individual investors.
Overall, the consensus was that investing requires operating with integrity and
transparency. “We always put clients first… we exist to serve best interests of our clients,
and we reinforce that culture over time and make prudent investments with good longterm outcomes,” said Pressman.
Chandler agreed. “Never view investors as commodities … clients have a mission just like
we do. They are not just the source of money flowing in. They are human beings.”
When asked how they would approach investing if it were 2008 again, Chandler replied
that BlackRock would hold back from making real estate investments if necessary. “We
would just say ‘No, thank you,’ and wait.”
Pressman agreed that TIAA-CREF would look at the relative value of real estate to other
investments. “We may still have some money being put to work, but not across the board
… if it was high quality [property] that we thought could absorb a downturn, we might
invest.”
LeFrak and Sonnenborn agreed that they approach their investments in the long-term
and would wait out a downturn.
Then Linneman asked, “Is it June 2008 now? How do you feel now?”
No one on the panel felt today’s markets are like 2008. There are problem areas, and they
are avoiding them. “We’re rotating capital out of markets we think are problematic now,”
said Pressman. “We’re in the 7th inning of a stable game.”
LeFrak agreed. “I don’t think it’s 2008 again. People aren’t buying real estate expensively
with hope of selling it soon more expensively. Most expensive purchases now are those
who want to keep it.”
While Sonnenborn said some investors are looking to quickly double their money, he is
focused on strategic purchases. “We’re being selective in terms of new opportunities,
looking at select office and residential properties.”
Linneman ended the panel by asking each man to complete the statement: “You’ll know
the end is near when …”
LeFrak and Sonnenborn said they would know when there is a loosening of underwriting
standards, and “when smart people start doing dumb things” (Sonnenborn).
Pressman agreed and added, “When construction rates start to accelerate and interest
rates kick up, ending the ability to get cheap money.”
Chandler ended the day with a joke: “When five Uber drivers in a row tell you about the
great real estate deal they’ve gotten.”
The Spring Members’ Meeting of
the Zell/Lurie Real Estate Center at Wharton
will be
Wednesday evening and Thursday, April 28-29, 2016
at The Rittenhouse in Philadelphia.