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!

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.

Accelerating Through the Turn

The pace hasn’t slowed here at the Wisconsin School of Business.  The first-year curriculum, which consists of a challenging and engaging core, has given us plenty to study, discuss and apply.  We always have something to prepare for – exams, team projects, individual assignments, presentations - and more is set to come. 

To be honest, it’s been a welcome surprise.  Like most MBAs in the class, I came to the University of Wisconsin-Madison for my MBA because of its specialized curriculum.  Many of us are eager to hit the ground running and the school does a tremendous job immersing students into what they’re most passionate about.  However, I have to admit, I’ve thoroughly enjoyed our core classes, such as Marketing and Teams, which incorporate thoughtful discussion and real-world application.  It has also been a great way to connect with non-Real Estate MBAs and share the experience of being a graduate student.  For instance, after an intense week finishing our marketing case report, I celebrated with a group of MBAs over an East meets West meal. 

Clockwise from the left: Mitesh Patel (Real Estate MBA’14), Ekow Bedu-Amissah (Corporate Finance and Investment Banking MBA’14), Ramesh Kanthilal (Real Estate MBA’14), Dan Corry (Strategic Human Resource Management MBA’14) and Michael Mostek (Supply Chain Management MBA’14); de-stressing after our Marketing 700 case report over Leininkugels and a home-cooked Ghanian meal.

Of course, I’m still getting a full portion of real estate.  The James A. Graaskamp Center for Real Estate and Real Estate Club continue to set up an impressive slate of esteemed speakers, including:

• Bradley Olsen of Atlantic Partners, who gave a detailed overview of the current political, regulatory, financial and real estate environment in Europe.

• Carl Ruedebusch and Kyle Adams (BBA’09) of Ruedebusch Development & Construction and Michael Waidelich with the City of Madison, who presented on the planning, remediation, and funding on Royster-Clark, a multi-year, 27-acre development project.

• Bob McClain of Crow Holdings, who presented the firm’s history, performance and strategy and came to recruit on-campus.

Most recently, Michael Brennan, Executive Director of the Graaskamp Center, conducted a special student Q&A with Gerald Hines, Founder and Chairman of Hines, and John Wood, Managing Director of the Chicago office.  It was an amazing opportunity to listen to one of the most storied entrepreneurs in real estate, learn about the firm’s history, culture and strategy and hear his unique outlook on life and what he portends for the future.  Mr. Hines, with wit and energy, ended the Q&A with the adventurous spirit of a true developer, wishing us all well on our aspirations and that we “don’t go broke” chasing them.

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.

Gary Beban of CBRE Accepts Innovator Award

In front of a capacity crowd at the UW-Madison Pyle Center, CBRE Executive Gary Beban received the Wisconsin Real Estate Program’s Innovator Award on Thursday, September 27, jointly awarded by the UW Real Estate Club and the James A. Graaskamp Center for Real Estate. The award was presented by Michael Brennan, Executive Director for the Graaskamp Center, and aims to celebrate the innovative achievements of key individuals within the real estate industry.

Gary began his presentation titled “Supporting Innovation” by tracing the trajectory of the company, which is now known as CBRE,  from 1971, his first year with the company, through the current year. Drawing on his experience as a history major during his days at UCLA, Gary brought a holistic approach to real estate throughout his career, noting that in order to be most effective, one must "understand your vertical". Put differently, you should know where your industry and company have been and where it currently is in order to create an innovative strategy for future growth. 

This strategic framework guided Gary, especially when he was named President in 1987, in his pursuit of repositioning the brokerage firm into a global, vertically integrated leader within the commercial real estate sector. Gary achieved this by understanding and capitalizing on two critical changes that would hit the industry: 1) the global circulation of capital; and 2) global corporate real estate services. With strategic acquisitions around the globe that linked CBRE offices across time zones, Gary established a formidable network through which CBRE employees were producing at every hour of every day, a far cry from a company with one office in San Francisco back in 1906. Furthermore, these acquisitions pushed the brokerage's vertical integration to new levels, as evidenced by the acquisition of Insignia that provided CBRE the industry's largest proprietary market research arm.

As was appropriate considering the student-focused setting, Gary provided a strategic industry look-ahead providing a look into CBRE’s Workplace Strategy. The basis of this strategy is acknowledgement of the original dynamics of developer, investor, user, and capital, synthesized with the more recent trends of advanced technology and telecommunications. Simply put, firms now view reducing costs inherent with occupying space as strategic strategies in their long-term planning. CBRE fits this within their vision by assuming increasingly mobile teams and occupancy square foot per employee from 350 to 50 to better serve their client base.

His closing remarks included words of wisdom for the attending students: stay current with global developments, and hone your financial skills and vertical knowledge. These certainly have proved fruitful for Gary throughout his impressive career at CBRE. The Wisconsin Real Estate Program was proud to welcome Gary to our UW-Madison campus!

Jonathan Brown comes to Madison from Washington, DC, where he managed downtown Class A office buildings for Tishman Speyer. Jonathan plans to leverage his prior experience with financial and analytic tools gained during the MBA program to develop and invest in urban commercial properties.

Innovator award recipient Michael Ashner shares career insights with students

As part of our Meet Our Current Students series, first-year real estate MBA student Jordan Denzer reports on the fall presentation of our Innovator Award.


Michael Ashner, Chairman and CEO of Winthrop Realty Trust received the Real Estate Club's Innovator Award at its first official meeting of the Fall 2011 semester on September 23rd at the Pyle Center. Truly an innovator in the real estate industry, Ashner was chosen for the award for founding the first ever group of tender offers for publically traded real estate companies.

Serving as the Chairman and Chief Executive Officer of Winthrop Realty Trust since 2004, Ashner's company acquired over $12 billion of real estate, including 85,000 apartment units, 50 million square feet of office, retail, and industrial assets and 1,000 hotel rooms. Ashner also served as the Chairman and Chief Executive Officer of Winthrop Realty Partners, L.P., a vertically integrated property management firm, since 1996. Winthrop Realty Partners has managed more than 500 limited partnerships, of which in excess of 50 were publicly reporting with over 100,000 investors, as well as five publicly traded REITs.

Graaskamp Center Executive Director Michael Brennan began the evening's discussion by citing Alexis de Tocqueville's statement, "we bear the mark of our origins" and asked Ashner to discuss his roots and his career progression to where he is today. Ashner began by saying that after he received his undergraduate degree in philosophy from Cornell, he quickly "realized a need to eat and to have shelter," so he decided to pursue his JD at the University of Miami.

Ashner initially worked as an attorney in corporate securities, where he learned about REITs and real estate syndication. This experience eventually led him to leave the legal professional and become a buyer of failing real estate syndications. He quickly learned how to value real estate and the nature of how markets ebb and flow. Ashner said he does not believe in efficient-market theory, "Value investing is a proposition in which the investor is betting against the generally held beliefs of other investors, as indicated by their actions in the market. If you think where you are is correct, and you've done the valuation, then make the bet."

He also discussed the difficulties in the valuation effort, stating that valuations will always be wrong because no one can accurately forecast value. Despite all number crunching and scenario analyses, "if a butterfly burps in China, then your Argus evaluation is going to be wrong."

Ashner's candor and insight was both captivating and instructional for students and staff alike. The Real Estate Club thoroughly enjoyed his visit and we are proud to have been able to present him with the Innovator Award.

The Innovator Series Award was conceived from the paper entitled "The Wisconsin Program in Real Estate and Urban Land Economics: A Century of Tradition and Innovation," written by Stephen Malpezzi, Chair of the Real Estate Department. The paper's central theme is that a rich history cannot be established without continually implementing innovation. Previous recipients of the award include Nicholas Billotti of Turner Construction, Laurence Geller of Strategic Hotels and Resorts, David Brain of Entertainment Properties Trust and Hersch Klaff of Klaff Realty.

Jordan Denzer is a first-year MBA student in the James A. Graaskamp Center for Real Estate. Jordan arrived in Madison from Dallas, where he previously worked in the benefits administration field for CONEXIS. He obtained his BBA in International Business from Stephen F. Austin State University.

"Sifting and winnowing" at the Wisconsin Real Estate & Economic Outlook Conference

On Thursday, June 9, the Graaskamp Center held our annual service conference for the state, the Wisconsin Real Estate and Economic Outlook Conference. Academic Director Stephen Malpezzi delivered the following opening remarks:

I'm very proud to be associated with this conference. I want to thank all the speakers and presenters, and especially all of you in the audience, for making this conference a success.

The Wisconsin Idea tells us that the University needs to be connected to real problems and issues faced by Wisconsinites as well as those beyond our physical borders, in the rest of the nation and indeed around the globe. It is our basic job description. As I look over the agenda I think we've put together a meeting that does meet the test of the Wisconsin Idea.

Two years ago we changed the name of our annual conference from the Wisconsin Housing Conference to the Wisconsin Real Estate and Economic Outlook Conference, to recognize the deep connections among housing, other kinds of real estate, and the economy in general.

Over the next few years, as Morris Davis provides the academic leadership for the Graaskamp Center and Mike Brennan leads our connection to the industry, I'll be spending part of my time to strengthen the focus of the Graaskamp Center on economic development.

Details will follow in the months ahead. Today I want to simply bring this effort, and indeed this conference, back to the touchstone of "sifting and winnowing" that is part of our inheritance from our intellectual and institutional forbearers, beginning with Richard Ely. Most of you have heard the phrase, and many of you have seen the plaque atop Bascom Hill, from a century ago:

Whatever may be the limitations which trammel inquiry elsewhere, we believe that the Great State University of Wisconsin should ever encourage that continual and fearless sifting and winnowing by which alone the truth can be found. Taken from a report of the Board of Regents. 1894 [slide of the plaque projected]

As many of you know, this quotation, famous on campus and off, came out of a fierce debate about (of all things) unionization, in 1894. In brief, Ely supported unionization, and some of the Regents did not. They never, to my knowledge, reached agreement on the specific issue, but they did, in the end, establish a firm principle that at Wisconsin, people had a right to speak on different sides of important issues; a right to be heard; and that we owe those with whom we disagree, as well as those with whom we agree, a duty to listen.

To be clear, "sifting and winnowing," doesn't mean that every idea is equal; but rather that ideas should be heard, and examined on their merits, rigorously, rather than reflexively. As Daniel Moynihan famously put it some years ago, everyone is entitled to their own opinion, but not their own facts. Sifting and winnowing helps us establish the facts, and helps us form opinions that are grounded in those facts as well as our values.

Now, in light of the principle of sifting and winnowing, today we aim to have some constructive conversations about housing, real estate, and our state's economic development.

I'm a professor, and I do research on these subjects. But economic development is not simply an abstraction, or merely an academic subject. It touches all of our lives, and our children's lives. Economic development is not just about economics, not just how much stuff we can produce or buy. It's also about how well housed we are, whether we're educated to reach our full potential, how well we attend to our health. It even touches on our basic security, and at the national and global level, questions of war and peace.

The key to understanding economic development is to start by understanding there is no key to economic development. There is no silver bullet. Economic development is complicated.

Unfortunately we live in a world where simple solutions get the headlines. All too often, we talk past each other, cherry picking research and arguments that support our preconceived notions, and ignoring research that challenges our preconceptions. Psychologists call this confirmation bias, and it's a very powerful part of human nature. We're all subject to it. We have to fight it, every day. The best way to fight confirmation bias is to hold to rigorous standards of evidence, and hold your own opinions to the same standard to which you hold others.

For example, if you're a Republican, or a fiscal conservative of whatever persuasion, you might think state tax cuts are a silver bullet. It's important that you know about the substantial body of research that tells us simple tax differences between states explain virtually none of the variation in state economic performance.

To pick another example, if you're a Democrat, or someone who worries about providing enough resources to schools, you might think that more dollars to our schools, perhaps for smaller class sizes, are a silver bullet. It's important that you know that of a number of careful studies done on this issue, so far I've only found one that finds statistically significant relationships between class size and performance, and that only in a few grades. Most careful studies are unable to find a simple relationship.

I can list another dozen silver bullets that aren't really silver. School vouchers, charter schools, passenger rail, spending on roads, less regulation of business, more regulation of business.

It gets even more complicated here. None of these is a silver bullet. None, by itself, are magic beans that take us up the stalk to Economic Development Nirvana. Yet each of these ideas contains some germ of truth, or at least can help us think harder and better about what kinds of things are likely to work, and in what combination. Tax cuts can help if we find ways to preserve essential services while reducing taxes. As a society, we haven't had that conversation yet. Some charter schools, and some public schools, do work as advertised; we need to make sure we figure out why, and replicate and encourage them. As a society, we haven't had that conversation yet. It's not about how much regulation we have so much as what kind of regulation, how we make regulations and taxes and other government interventions smarter. As a society, we haven't had that conversation yet.

Recognizing that some of the best ideas will come from people with whom you disagree, is an important step towards making these true conversations, productive conversations. We need, as Ely and the 1894 Board of Regents taught us, to sift and winnow. Fight your confirmation bias; help me see mine, but in a constructive way. Don't paint yourself, or others, into corners. Determine the facts, and what works, without regard to ideology; and then act on it.

This is why we are here today. Join us in a day of sifting, of winnowing, of learning. Let's move these conversations forward today. Listen, as well as talk. Do recognize that, if we're honest and careful about it, sometimes we'll initially be uncomfortable with what we find. Challenge yourself as well as others. Let's move the conversation ahead, not only today, but over succeeding weeks and months and years. Let's get Wisconsin's economy, and our people, moving FORWARD.

On Wisconsin!

Postscript: Several conference participants and colleagues have asked for more details on Malpezzi's claims that research rarely supports "silver bullet" approaches to economic development. In the next several weeks we'll post some details and references, and seek comments and further conversation.

The Progressive online has begun the conversation, with a commentary on Malpezzi's introductory remarks, and his own brief reply, at Progressive.org.

More "sifting and winnowing" to come!

Hersch Klaff Receives the Real Estate Club Innovator Series Award

Today we have another entry in our Meet Our Current Students Series:

At the Real Estate Club’s first spring semester meeting on Thursday, January 28, Michael Brennan, executive director of the Graaskamp Center, presented the Innovator Award to Hersch Klaff, managing director of Klaff Realty, a Chicago-based privately owned real estate investment company. Mr. Klaff is the fourth recipient of the award which was established to recognize outstanding individuals who have made a creative mark on the real estate industry.

Klaff moved to the United States from South Africa in 1978 to begin a career in accounting. After learning about the real estate industry from his clients, he left accounting and pursued his real estate broker’s license in Illinois. Klaff Realty was started in 1982. He closed his first deal, the $12 million acquisition of a former Marshall Field's building, after reading about the owner’s desire to sell in a newspaper, camping out at their office for three days waiting for a meeting and convincing them to give him a few days to find buyers. The deal closed in one month.

The focus of his speech was the constant search for new ideas and opportunities. Klaff began the first part of his real estate investment career acquiring large corporate assets in the Chicago Loop and repositioning them into multi-tenant buildings. After the real estate crash in the early 1990s, he saw an opportunity to buy distressed assets in suburban Chicago from banks that were eager to sell. While the locations of these assets were outside of his comfort zone, he used the same investment guidelines he had always used to produce returns of around 20% in a three to five year timeframe.

His next move was to team up with companies that specialized in liquidating retail stores, where the stores’ inventories were the focus and the real estate was rarely considered. This strategy involved acquiring assets from bankruptcy court, another first for Klaff. Going through and understanding this process gave Klaff a niche opportunity as the only real estate company utilizing this avenue for acquisition opportunities.

Klaff is currently searching for his next great idea, which may involve real estate in South America or a return to Chicago (Klaff was a strong bidder in the 2009 sale of the Chicago Cubs, which, believe it or not, was a real estate play). While many would see the obstacles in investing in a new arena such as a foreign nation or a baseball team, Klaff sees the opportunities that no one else can.

The Innovator Award was conceived from the paper entitled "Tradition and Innovation," written by Stephen Malpezzi, academic director of the Graaskamp Center. The paper's central theme is that a rich history cannot be established without continually implementing innovation. The award, sponsored by the UW Real Estate Club and the Graaskamp Center, is typically handed out each semester.

Eric Dowling is a first-year MBA student in the James A. Graaskamp Center for Real Estate. Eric plans to combine his previous real estate experience with his MBA education to establish a career in private equity investments.