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.

Co-Founders Michael Brennan and Robert Vanecko Talk about Mega Deal One and Two

 Real estate students at the Wisconsin School of Business received an educational visit from a leading player in the industrial real estate arena, Brennan Investment Group (BIG), on Friday, Dec 7. Chairman and Managing Principal Michael Brennan, who also serves as the Executive Director of the James A. Graaskamp Center for Real Estate, was joined by Managing Principal and Co-Founder Robert Vanecko to discuss a deal that proved James Graaskamp’s time honored adage: “The successful real estate deal is nothing more than a series of crises tied together by a critical path.”

 “All deals are sagas,” was Brennan’s lead comment as he opened the discussion of Brennan Investment Group’s (BIG) two recent mega-deals, the acquisition of a 20 property, $155M portfolio and a 19 property, $178M industrial portfolio. The presentation “Start to Finish: The Acquisition of Two Major Industrial Portfolios” was a detailed look into the creation of Brennan’s company, how his team sourced the capital necessary for the two “mega-deals”, the unique structure of the deal, and the successful closing of one of the largest industrial acquisition portfolios in 2012.

Creation of Brennan Investment Group

Before discussing the transaction, Brennan spoke about the creation of BIG, “without which, we would never have closed an acquisition of this scale” said Brennan. After the expiration of Brennan’s non-compete restriction from First Industrial in 2010, Brennan assembled a team of largely ex-First Industrial professionals. “Each partner had unique skills, and each partner came from a critical region in the U.S.” Within nine months, Brennan set up five offices in LA, Houston, Chicago, Tampa and D.C. Brennan described his company as an “eat-what-you-kill deal shop” where partners risks are high, but reward is as well.

The Unique Qualities of the United States Industrial Portfolio (USIP) Deal

Robert Vanecko explained his firms focus is on transactions that can create value for all investors in the deal. An interesting methodology used by Brennan is something Vanecko referred to as the “STP Matrix”. The matrix sorts and ranks acquisitions by seller circumstance, transactional complexity, and property level attributes. In this deal, Vanecko cited transactional complexity as the factor driving the “value-add” component. Because of its sheer size and inherent complications, there was a limited pool of buyers, hence limited competition.

The USIP deal also employed a fairly complex and unique equity financing scheme. The  L.P. equity was provided via a sharia compliant equity partner know as Gatehouse, located in London. Sharia compliant financing must employ different legal structures to avoid direct payment of interest. As well, the investment cannot lease space to tenants involved in usury, gambling, munitions, or pork products.

Successful Closing

Vanecko joked that if Graaskamp were alive today his famous adage on the critical path of deals might be revised to read “A successful real estate deal is nothing more than a game of ‘whack-a-mole’”. Vanecko emphasized that in every deal, there will be three or four things that will arise that have the potential to kill a deal. In USIP I and II, there were “dozens of rounds of ‘whack-a-mole’ we had to win in order to close.”

Given the young audience, Brennan offered great tips regarding start-up operations including “start-ups have to starve”, and discussed his firm’s critical ability to manage start-up and pursuit costs without being left ‘holding the bag,’ if you cannot come up with the equity or the desired properties. Brennan also placed great emphasis on the importance of relationships in this industry. On behalf of the students here, we would like to thank Mike and Bob for sharing their knowledge and experience with us!