Meet the GREM Students

Pictured from left: Wentao Cai, Jue Shen, Fares Bou Atme, Thomas Sukno

Now in its third year, the Global Real Estate Masters program partners the Wisconsin School of Business real estate program with HEC Paris, Hong Kong UST, INCAE, and Shanghai Advanced Institute of Finance (SAIF), to provide top ranked international business schools access to Wisconsin’s renowned real estate expertise. Currently, four students are living and studying here in Madison.  I sat down with them to learn more about why they pursued the GREM program and see how they are enjoying their time in Madison.

What did you choose the GREM program and what do you hope to get out of it?

Jue Shen (SAIF): With eight years of experience in various capacities in corporate finance at the Industrial and Commercial Bank of China, I wanted to obtain top notch real estate education as the industry becomes increasingly important in China. Also, gaining understanding between China and the United States markets is a passion of mine, as I wish to help U.S. investors access the Chinese real estate market more effectively.

Wentao Cai (SAIF): Given my current job as an advisor to a firm specializing in new project developments and urban planning in China, I needed a real estate-based educational framework to effectively apply my knowledge on the ground.

Fares Bou Atme (HEC Paris): After graduating from the American University in Beirut with a degree in civil and environmental engineering, and several years working in sustainable structural design, I knew I wanted to pursue a career in real estate. I found HEC Paris attractive, especially when paired with the real estate coursework at Wisconsin. GREM provides a comprehensive global view of real estate, much more than any other program that I researched.

Thomas Sukno (HEC Paris): I was initially attracted by an advertisement at HEC Paris and after a bit of research realized that this was such a highly rated program. My hope for the program is that it will broaden my horizons into real estate finance. So far so good!

What do you like most about the real estate profession?

Jue: I like the finance side of the business, specifically helping small investors gain access to real estate capital. The GREM program has also opened my eyes to the REIT structure and I find it quite interesting.

Fares: I have a passion for the built environment, and a career in real estate provides the best combination of my various interests in architecture, civil engineering, urban planning, finance, entrepreneurship, among others.

Thomas: I appreciate its multi-functional diversity. In real estate, you are not pigeonholed into one function, but can find a job you like whether it be in capital markets, construction, appraisal, development, and so on.

Where do you see yourself in five years?

Jue: I picture myself working with an asset management company, along with having a family with a cute kid hopefully!

Fares: Short term, I want to work for a development firm in the Middle East given the region has huge room for growth, and eventually I would like to start my own real estate firm.

Thomas: I will work for a Parisian investment banking firm starting in July that specializes in equity capital markets mainly in Western Europe with some global reach. I hope to leverage that experience with my entrepreneurial spirit to start my own company.

What is your impression of Madison?

Wentao: Madison is the only city I have visited in America so it’s tough to compare to other cities, but I can say that it is very livable.

Thomas: It was different than how I pictured a typical American city. The sense of community is striking and really sets it apart from other cities.

Jue: The people and community here are great. Madison is a very suitable place to live. The winter months are interesting to say the least. I am amazed by both the amount of snow and the fact that people sit in the middle of a frozen lake to ice fish!

Thank you to each student for answering our questions and it certainly has been great getting to know them this semester!

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 eventually start his own real estate investment firm.

À Bientôt, MIPIM

Here’s to the real estate MBA Class of 2014 knowing much more about international real estate and global capital flow than we did before! The 2013 MIPIM trip was a whirlwind of meetings with diversely talented individuals, panel sessions about the real estate environment across the globe, debrief sessions with Dean François Ortalo-Magné, and the occasional yacht party. Overall, we were able to derive a comprehensive snapshot of the global real estate market in time, and better understand how macroeconomic events steer capital markets within the real estate industry.

Key MIPIM 2013 Themes:

1.       An unprecedented and growing yield gap between core and perceived non-core assets

2.       Institutional investors are seeking managerial control through direct investments

3.       Employers desire real estate experts instead of merely financial engineers

4.       Participants are largely bullish towards Asia & America, and cautious towards Europe

Our special thanks to company representatives during the trip who lent their time for the advancement of our students: Deustche Bank, Park Hill Group, BNP Paribas, Lazard Freres, Real Capital Analytics, IPD, Atlantic Partners, DTZ-UGL, USAA Real Estate Company, Heitman, DLA Piper, Metzler, DREA(m) LLC, Amstar, Bjarke Ingels Group, and all others involved with us during our time there.

One final thank you to the Graaskamp Center for Real Estate, for without it we would not have been able to partake in this wonderful experience. I’m left with one lingering thought: how can I convince the organizers of the need for a 2^nd year MBA consultant on next year’s trip!

Real estate MBA students and faculty pictured with Dean Ortalo-Magné and Rose-Noëlle Pritchard, Conference Manager for Reed MIDEM

The Wisconsin Idea Meets Barcelona (Part III)

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

After the plenary I described in my previous posts, we had a well-received session entitled “Cities and Housing – Closing the Urban Housing Gap,” chaired by the World Bank’s Ellen Hamilton.  The focus of the session was on developing and emerging markets.

As countries grow and urbanize, the efficient and equitable production and delivery of housing and its associated infrastructure are key elements of successful urbanization.  In the aggregate, housing typically comprises something on the order of half a country’s tangible capital stock, a fifth to a third of gross fixed capital formation, and 10 to 30 percent of consumption.  Housing often leads the business cycle, and is often one of the main channels of monetary policy.  It is intimately tied to the development of (and sometimes to serious problems in) a country’s financial markets.

From a social perspective, housing is the most widely held form of wealth in most societies; and through this channel and through the operation of rental markets, housing is an important determinant of the distribution of welfare as well as its average level.  Furthermore, housing is a good that is characterized by important external costs and benefits, i.e. costs and benefits that are not “internalized” or paid directly/received by individual market participants, so it is not surprising that all governments intervene in some fashion in housing through various taxes, subsidies, regulations, and sometimes direct public provision.  But the efficacy of these interventions varies widely.

Three exciting papers were presented by younger researchers.  Basab Dasgupta told us about the connections between housing, location, and transport in South Africa, in light of recent government housing initiatives in “Shelter from the Storm – But Disconnected from Jobs,” co-authored with my friend Somik Lall.  Sohail Ahmad presented new housing demand estimates from Bangladesh that gave us a closer look at households’ actual consumption, and commented on that country’s housing policies in light of those facts.  Ashna Mathema took a look at similar issues in Rwanda; and Kate Owens (a young colleague who is taking time out from international consulting to do a PhD at our Big 10 rival Michigan) examined these issues in Dar-es-Salaam, Tanzania.  These latter papers seemed consistent with long-ago work by myself and the late Steve Mayo, that found budget shares for housing decreasing within cities as household incomes rose, but increasing in the very long run across cities as some grew and developed.

Two other papers were presented by greyer heads, my good friend and coauthor Alain Bertaud, and myself.  Alain is one of the world’s leading urban planners – I would say the leading planner – and in some future post we’ll discuss our joint work more fully.  In this presentation, Alain discussed the effective supply of land and, ultimately, real estate floorspace, in today’s cities.  There are two main channels for increasing the effective supply of land and floorspace; one is to improve the transportation system (shortening travel times increases the effective range of a city’s land market), and the other is to reform how urban regulations affect the translation of land area into floorspace.  Figure 1 illustrates the latter, with case study data from Ahmedabad.

For every 100 square meters of land that’s developed, 26 square meters ends up in the market for housing or other real estate; and given these 26 square meters, up to 44 square meters of floorspace may be delivered.  (In the informal or “slum” sector, another 4 square meters of land yields 7 square meters of floorspace).  Improving the effective yield of floorspace can be accomplished in several ways, for example by reducing the substantial fraction of newly developed land kept in government hands, mostly held as vacant; and by improving the yield of floorspace per unit of land submitted to market forces, for example by reforming Floor Area Ratio (FAR) regulations and so on.

Given the “externalities” argument and the fact that most governments intervene heavily in the housing market (including our own!) the purpose of my own paper was to discuss how to design interventions that work – and how to avoid interventions that do not work – based on experience in a range of countries, and on applied research.  The goal is to provide some directions for housing policies and programs that have proven to be effective – both equitable as well as efficient.

Want a few examples?  Here is a taste:

Nothing good will happen in housing markets without secure property rights; but don’t fall into the trap, as some have recently, of believing that simply granting titles to slum dwellers will be a sufficient solution.  There’s a lot to be done, such as improved registration procedures and information systems, and setting up a modern legal framework that’s truly relevant to low cost housing.

Improving infrastructure is another key area.  In many developing country cities, the supply of basic water and sanitation is even more critical than transportation improvements.  But we can’t simply import the water system of New York or London’s waste treatment solutions; appropriate water and sanitation solutions depend critically on income levels and willingness-to-pay of recipients; on population densities; and often on climactic and soil conditions as well.

A well-functioning housing finance system competes for funds on equal terms with other investments, whether through deposit-based or capital markets-based models of resource mobilization (or some combination of the two).   Directed credit models have proved inefficient, inequitable, and unsustainable.  In particular, forcing housing finance institutions to lend at consistently negative or highly subsidized interest rates proven problematic; deeply subsidized state lenders have created financial problems in countries both rich and poor.

Cities need to regulate development and land use, but in a contextual and appropriate manner.  Most cities (including again many in our own country) need to undertake an exercise “regulatory triage:” separate regulations into (1) those whose benefits clearly exceed costs, and strengthen and enforce them; (2) those whose costs clearly exceed benefits, and remove or reform them; and (3) a middle category of those for whom the net cost-benefit is too imprecisely known to be confident of the need for change.  In many if not most cities, an initial focus on (1) and (2) will keep regulators busy for some time, and will yield significant returns.

Those are just four of a few dozen recommendations elaborated upon in the paper; if you are interested in housing or real estate markets, whether in developing or emerging markets, or here in the U.S., you might find it interesting; download the paper here.

Well, we’ll be wrapping up soon.  I’ll write one more blog post, coming soon, that will discuss a few more findings from our Barcelona meeting; and I’ll discuss some of the next steps that will be taken by the sponsors and participants.