Wisconsin MBAs Travel Far to Explore Chinese Real Estate Markets

Over the winter break, ten second-year Real Estate MBAs from the Wisconsin School of Business traveled to China, following an intense itinerary through Shanghai, Hangzhou, Hong Kong, Shenzhen and Macau.  Students met with brokers, planning authorities, money managers, developers, investors, lenders, attorneys and alumni to gain first-hand insight into these growing real estate markets.  The 10-day tour included a dizzying array of company presentations, property tours and speakers. 

Students prepared for the trip by performing market research and compiling a briefing book for their peers.  Students also conducted presentations of their analysis, which focused on understanding key industry players, legal structures, the political environment and cultural differences.  Once on the ground, the students were able to visualize the enormous transformation occurring in the world’s most populous country. 

“Chinese cities are experiencing growth and development on a scale never before seen,” said Travis Carter (MBA ‘13).  “It is almost impossible to wrap your mind around it.  Shenzhen was a small fishing village inhabited by a few thousand people in 1979 and today it is a sprawling metropolis of more than 15 million people.”

Viewpoint from Hysan Place, a newly opened enclosed shopping mall and Class A office building constructed over an MTR subway station in the Causeway Bay neighborhood of Hong Kong.  The visit included a tour by the architectural firm KPF and led to a discussion on the structural and financial aspects of the building.

Students met with large international institutions such as Jones Lang LaSalle and JP Morgan, as well as, key domestic players such as China Vanke, Shui On and Zendai Properties.  The trip included an extensive tour of a notable Tishman Speyer development, The Springs, located on the outskirts of Shanghai.  The mixed-use project is being developed on a former military airfield and nears ten million square feet in total.  Students were amazed, counting 11 cranes in the sky and estimating another 7-10 cranes not visible from their vantage point.

“For someone who has never been to China, I don't think it is possible to adequately describe the size and scope of the residential projects currently being developed,” reflected Phil Natkins (MBA ‘13).  “In the U.S. these wouldn't be considered residential developments, but would be more aptly named, ‘New City Developments.’  To see it, is the only way to believe it.”

Scale model of Shanghai at the Shanghai Urban Planning Exhibition Center. The detailed 3-D model provided a bird's eye view of the city and highlighted how the development of real estate has been molded around the ever-growing metro transit system.

Now back in the United States, participants of the international study trip have to apply the knowledge gained during the trip.  The students will prepare an investment memorandum and presentation targeting potential private equity investors interested in deploying capital in a foreign market.   Students will present their proposal in a 10-15 minute presentation to their peers, instructors and faculty.

Faculty Lecturer Arif Qureshi (BS ‘94, MS ‘04) led the trip, with support from MBA alum Chris Jillings (BS ‘99, MBA ‘10).  Both Qureshi and Jillings emphasized the important role alumni and friends of the program played in making this year's trip through China an outstanding success.  Special thanks to Raymond Lo (BBA ‘75), CIC Capital Management Limited’s Founder and Fred Cooper, Senior Vice President at Toll Brothers, for providing guidance and contacts for many of the meetings in China; Sir C.K Chow Chairman of Hong Kong Stock Exchange for meeting with students about HKEx and MTR; and Xi (Ada) Chen (MBA ‘10), Wei (Isabella) Qiu (MS ‘11) and Qiujin (Jack) Li (MS ‘12) for planning networking dinners in Shanghai and Hong Kong. 

Real Estate MBAs displaying their Badger pride at Po Lin Monastery in Hong Kong.

The Consortium Experience – From a Real Estate MBA Student’s Perspective

By Amber House, Real Estate MBA, Class of 2014

The Consortium for Graduate Study in Management (The Consortium) is the country’s leading organization for promoting diversity and inclusion in American business. Through an annual competition, The Consortium awards merit-based, full-tuition fellowships to America’s best and brightest candidates for study at one of the 17 Consortium member universities. Applicants looking to join the MBA Class of 2014 experienced yet another highly competitive Consortium fellowship competition. Last year, over 1000 applications were received for membership and only approximately 300 Consortium fellowships were awarded across its member universities.

Annually, Consortium Fellows from member schools across the nation are invited to participate in one of the most highly anticipated events of the year, The Annual Orientation Program and Career Forum (OP). In July of 2012, the five-day OP conference was held in Minneapolis, MN. Fellows took part in an ambitious series of career focused events, first-look opportunities with national corporate partners including 3M, General Mills, and Target (just to name a few) and the opportunity for Fellows across the nation to meet for the first time.  

As one of three founding partners, The Wisconsin School of Business definitely sets itself apart when it comes to preparing their Consortium Fellows for success within the highly competitive OP environment.  About a month and a half before the actual Consortium OP event, Wisconsin invites their Consortium Fellows to participate in “OP Boot Camp”, a jammed-packed weekend complete with intense career and interview preparation.  “We developed our STAR interview stories, learned key networking tips and methods towards perfecting our personal brand, and even received interview feedback from SC Johnson executives,” says Caroline Mwonga, first year Wisconsin MBA studying in the Center for Supply Chain Management. Wisconsin is serious about ensuring its Fellows’ success at Consortium OP.  The best part of OP Boot Camp, from my perspective, was the opportunity to meet and bond with first- and second-year Wisconsin Consortium students. During that weekend, we discovered a Consortium family, one that will stay with us throughout our Wisconsin MBA journey and beyond.

As a Consortium Fellow looking to continue my career within the real estate industry post MBA, I can admit that I was a bit skeptical about whether my participation at OP would be as successful as my peers. However, I was pleasantly surprised!  Even though Real Estate MBA’s are not the most sought out students for recruiters at OP, the event provided me with an invaluable opportunity to connect with corporate partners who would later become allies during my search for internship and full-time offers. I am now a part of a national network of professionals eager to support The Consortium’s mission and their Fellows, as well as, an MBA at a founding member university whose brand, especially within the real estate industry, continues to speak volumes.  The Wisconsin School of Business unquestionably has a recipe for success with its focus on supporting diversity initiatives and producing specialized MBA graduates ready to take on the work force.

For more information on The Consortium visit http://www.cgsm.org/about/index.asp.

Amber House comes to Madison from San Diego, CA, where she managed the development of multifamily homes affordable to low-income households for Community Housing Works.  Amber would like to leverage her project management and financial analytic skills to promote renewal and reinvestment in urban communities.

Armed Guards, BRICs And Building The Best: A Badger-Led Q&A with Gerald D. Hines and John Wood of Hines Interests LP

On October 9, 2012, a select group of undergraduate and graduate students from the Wisconsin School of Business gathered in Grainger Hall to sit down with one of the most renowned real estate entrepreneurs in the world: Gerald D. Hines, Chairman and Founder of Hines Interests Limited Partnership (“Hines LP”).  The firm, founded in 1957, is currently active in 18 countries, has approximately 3,300 employees and controls assets valued at approximately $22.9 billion.  Since its founding, Hines LP has managed over a thousand projects in 245 cities across four continents.  Michael Brennan, Executive Director of the James A. Graaskamp Center for Real Estate, moderated the student-led Q&A with Mr. Hines and John Wood, a Managing Director in the firm’s Chicago office.

Students probed the real estate pioneer’s illustrious past, outlook and aspirations, unearthing an array of anecdotes and stories.  Mr. Hines was an impressive raconteur, entertaining students with various tales from his career developing real estate around the world.  The first question immediately sparked a dazzling story describing an incident in which armed guards raided one of the firm’s foreign offices.  The episode was a lively example of the travails the firm faces when investing globally.

Mr. Hines clearly enjoys the challenge.  Hines LP, which partners with pension and sovereign wealth funds, has been investing in BRIC countries (Brazil, Russia, India and China) since the early 1990s. 

“The tougher, the better,” he exclaimed.  “You might get killed, but there’s less competition.”

Despite cultural and political differences, Mr. Hines doesn't hesitate to send “Texans to Russia.”  In fact, Hines LP actively seeks opportunities that allow entry into lucrative markets throughout the world.  The firm entered the Russian market by partnering with a local operator and establishing a reputation for quality.

It’s that ideal for quality that inspired the firm’s start in Houston.  Mr. Hines saw a market oversupplied with “junk” and knew he could build something of better value.  Improving the workability of the tenant – from expansive lighting to improved air quality to large floor plates – has been an important guiding principle.  Mr. Hines spoke highly of the firm’s conceptual construction group, whose primary goal is to answer one simple question: how do we improve the product?

The small and specialized team promotes quality and innovation by evaluating the mechanical systems, operating expenses, maintenance costs and development planning of the firm’s investments.  Students also highlighted the firm’s creativity and out-of-the-box thinking by focusing the discussion on some of the firm’s notable developments, including:

• The Galleria (Houston, TX), an upscale mixed-use urban development that incorporated Milan-inspired architecture and constructed a basement level ice skating rink
• 101 California St. (San Francisco, CA), a LEED Platinum office building that achieved the highest LEED score in history in the existing building category (the building uses earthworms to brew fertilizer for the plants and trees in the building’s plaza and atrium)
• Transbay Tower (San Francisco, CA), a 1.3 million-square-foot office tower, which, once completed, will be the tallest building west of the Colorado Rockies

Mr. Wood added that it was the firm’s high standards and reputation that attracted him to Hines LP.  The firm’s reputation creates opportunities to work on outstanding projects, something that excites and motivates him every day.  Mr. Hines reciprocated, noting that it’s the firm’s talented employees that allow him to enjoy life.  An avid skier and mountain climber who enjoys spending time with his family, Mr. Hines takes pride in knowing he can entrust the firm to upstanding individuals that do what they say – and in the right way – and don’t overpromise.  He also emphasized that the firm’s 3,300 employees were a top priority and that maintaining the jobs significantly contribute to his determination and resilience during a tough economic climate.

The firm’s current economic outlook was described as “cautiously optimistic.”  Capital continues to be constrained and competition is just as fierce, making development difficult.  Mr. Wood pointed out the difficulty of finding equity for projects despite significant pre-leases and that the firm has had to break leases as a result.  Although the firm is looking at acquisitions, development projects are waiting for equity.

Mr. Hines added that development projects also require courage.  “It’s all very exciting, but can get pretty hairy at times.”

Fitting then, when asked of which project he was most proud, Mr. Hines replied “The first one that survives.”  When talking about One Shell Plaza, one of the first high-rise office buildings constructed by Hines LP, Mr. Hines spoke emphatically about developing meaningful business relationships and how they are a resource for opportunities, financing and expertise.  He called upon the students to undertake the same goal he set for himself and the firm: to build great buildings at a reasonable cost and to not go broke doing it.

In other words, as Mr. Hines stated, “We want to have fun but also pay our bills.”

Mitesh Patel comes to Madison from New York, NY, where he focused on raising third-party capital for Merrill Lynch Global Private Equity.  Mitesh would like to use his diverse work experience to pursue a role investing in public and private real estate.

The Wisconsin Idea meets Barcelona (Part II)

by Stephen Malpezzi, Professor and Lorin and Marjorie Tiefenthaler Distinguished Chair in Real Estate

In addition to the Barcelona Mayor’s official opening statement, the opening session included some very thoughtful remarks by Deputy Mayor Antoni Vives, who discussed some of the challenges faced by cities – increasing their productivity and that of their labor forces, facilitating the sharing of knowledge and ideas, and doing so in a sustainable fashion.

The World Bank’s Abha Joshi-Gahni introduced our Rethinking Cities book forthcoming at the end of this year.  She noted it was a time to think hard and fast, since the best UN forecasts suggest the world will add about 1.7 billion to its cities between now and 2030.

Among the many points reviewed by Harvard’s Ed Glaeser (see previous post), let me touch on one I particularly like to share with students, based on one of my favorite papers.  Fifty years ago, Professor Benjamin Chinitz wrote a classic study, Contrasts in Agglomeration: New York and Pittsburgh.  A short version [located here] was published in the American Economic Review.

This brief and deceptively simple paper suggests that one reason Pittsburgh went into a long slow decline, while New York had ups and downs but ultimately reinvented itself, was the difference in structures of their local economies.  A century ago, Pittsburgh was dominated by the steel industry, with large-scale plants and huge vertically integrated firms like U.S. Steel, a combine that included Andrew Carnegie’s 19^th century mills.  (My father and other family members mined some of the coal that fueled these mills).  New York’s major industry was the textile industry, which was much more an agglomeration of many small and medium sized firms, that were much more entrepreneurial and networked.

After World War II both Pittsburgh’s steel industry and New York’s garment industry slowed, and ultimately declined.  The accompanying figure shows (in log form) the population of both Pittsburgh and New York (cities, not the metro areas!) back to the first few Censuses two centuries ago.  You’ll notice that New York was always larger than Pittsburgh; no surprise there.  For more or less the 19^th century, both grew at very fast rates (the slope of a log chart is roughly the growth rate of the original data).  But notice that although New York’s population slowed its growth after the War, it still grew, with just a decade or two of some decline.  New York City’s 2010 population of about 8.2 million is its highest ever.  Pittsburgh, on the other hand, went into a steep decline; its city population peaked at about 670,000 in 1950, and it’s around 305,000 today.

Chinitz argued, and provided data to support, the notion that no small part of the contrast between the two cities is that the more diversified and entrepreneurial New York did a much better job of reinventing itself; the “company men” of U.S. Steel floundered.

I find Chinitz’s analysis very thought provoking though, as he himself admits, incomplete. Virtually all of the older eastern central cities had some period of declining population, or at least relative declines, simply due to the demand for larger homes and lower transport costs that fueled postwar suburbanization; New York City was and is so physically large that in a crude sense some of the outer boroughs are partly their own suburbs.

Nevertheless, I think this difference mattered, a lot, especially in the 60s through perhaps the 1990s.  But as has also been noticed, Pittsburgh has undergone a limited rebirth, led by two first-rate research universities (the University of Pittsburgh and Carnegie-Mellon University) and a university-connected thriving health care industry that serves the region and beyond.

None of this is to downplay the problems Pittsburgh continues to face; many of the health care jobs pay much less, in real terms, than the old steel jobs.  A lot of the city’s basic infrastructure is in dire need of repair and reconstruction, and the city’s fiscal position is precarious, due in no small part to sharp practices in their pension accounting.

But to end on a high note, if we ever needed to pick a “dream team” from any time or place to play one of the great Packers teams, either from recent decades or the 1960s; as a Pennsylvania native of a certain age, might I offer the services of the 1975 Pittsburgh Steelers?