For information on this seminar, go here. For more information on Real Estate Continuing Education, go here.
Letter from the Executive Director
Mark J. Riedy, PhD
At our 14th Annual Real Estate Conference this past January, Sam Zell suggested to the students in the audience that, rather than pursuing a real estate education, they may want to consider medical school instead!
And while Zell may have fellow doubters in the viability of the industry, I refuse to believe that real estate is a dead-end career for students graduating this spring. And so, apparently, do they. Indeed, we had a record number of students attend our recent Real Estate Career Expo, along with close to 20 public and private employers.
The Center’s newly formed Young Entrepreneurs Council (YEC) also is holding a Career Development panel for graduate and undergraduate USD students April 9 to share their enthusiasm about real estate as a career and convey their positive outlooks. YEC members—who are a group of high performers under the age of 35—disagree with those who believe current job prospects are terrible.
We are working hard at educating our real estate students, making sure that they are well-prepared for their future careers. We also are encouraging them to consider the entrepreneurial approach of starting their own businesses. Equally important, we are emphasizing to our graduating students that looking for a job is hard work and demands tenacity, flexibility and the wisdom to assess opportunities for their long-term career-building potential, rather than their starting compensation levels.
With those thoughts in mind, I can’t over-emphasize the role that industry executives and employers play in this job market. Your willingness to find solid job opportunities within your firms for graduating students is good for our students, of course, but also good for you. USD students truly stand out from the pack because of their attitudes, work ethic, values and passion for real estate.
Just as the Burnham-Moores Center for Real Estate created the Young Entrepreneurs Council to give us the fresh perspectives of future industry leaders, I encourage you to add new blood to your organization by hiring USD students. Hiring is a critical decision with long-term implications for the real estate industry as it develops the next generation of leaders. In previous down cycles, the industry has been short-sighted in not creating new and/or filling vacant positions. This created a dearth of up-and-coming junior executives for future leadership positions both in individual firms and in the industry as a whole.
Spring 2010 is the time for this industry to be entrepreneurial in hiring students. You will be thrilled at the value that they bring to your firm.
Dr. Mark J. Riedy
Supreme Court Update
Steiner v. Thexton: Free Looks Are (sort of) Free Again
By: Michael J. Maher, Hecht Solberg Robinson Goldberg & Bagley LLP
In July 2008, we told you about the California Court of Appeal ruling in Steiner v. Thexton, which affected the viability of a common practice in the real estate industry in California: the purchase and sale escrow in which the buyer is entitled to receive back their entire deposit if they elect to terminate the escrow at the end of the feasibility period.
This past week, the California Supreme Court reversed the Court of Appeal, concluding that the agreement on which the dispute focused was an option to purchase—even though the parties had called it a purchase and sale agreement—and that the option was enforceable; essentially that Martin Steiner could compel Paul Thexton to sell his property. Given current market conditions, Mr. Steiner may have achieved the perfect Pyrrhic victory.
To refresh you on the facts, Thexton owned his family’s homestead, roughly 12 acres in Sacramento County, and was a reluctant seller. When Steiner approached him in September 2003 about buying 10 of the 12 acres, Thexton had already turned down a higher offer, as well as an offer from a buyer who wanted him to undertake the lot split to carve out the 10 acres to be sold from the two acres he would keep. Nevertheless, Thexton entered into an agreement with Steiner to sell him 10 acres for $500,000. Steiner deposited $1,000 in escrow, which would be applied to the price at closing. The closing was to occur upon Steiner’s “successful completion of subdividing the 10 acres from the existing [12-acre] parcel” no later than September 2006. Steiner had the right, but not the obligation, to investigate the financial feasibility of developing the 10 acres, including obtaining the parcel split. If Steiner elected not to proceed, the entire deposit would be returned to him.
California Supreme Court, Photograph by
Steiner applied for the parcel split and the county approvals needed to develop the property. He proceeded to process the application, including providing Thexton with quarterly progress reports as their agreement required. Steiner spent approximately $60,000 on investigating the property and on seeking the development approvals. In October 2004, shortly before Steiner’s final public hearing for the parcel split and development approvals was scheduled, Thexton instructed the escrow holder to cancel the escrow, stating that he no longer wanted to sell the property. Steiner objected to Thexton’s instruction and proceeded with the final hearing, thereby obtaining the county approvals he had been seeking. Steiner brought suit against Thexton seeking a court order compelling Thexton to sell the property at the agreed-upon price.
The trial court ruled against Steiner, and the Court of Appeal upheld the trial court’s decision. The Court of Appeal focused on the following sentence in the agreement: “It is expressly understood that the Buyer may, at its absolute and sole discretion during this period, elect not to continue in this transaction and this purchase contract will become null and void.” Based on that key sentence, the Court of Appeal concluded that the agreement was an option contract and that the option was unenforceable because Steiner had not paid for it. The Court of Appeal concluded that Thexton had the right to cancel the contract, and that Steiner had no right to compel Thexton to sell.
The Supreme Court concluded that the Court of Appeal was correct in one respect: the agreement was indeed an option contract; but in reversing the lower court’s decision, the Supreme Court concluded that there was legally sufficient consideration to make the option enforceable.
The agreement was an option contract. Relying on precedent dating to 1917, the Supreme Court found that the agreement had the “classic features of an option.” First, the agreement required Thexton to hold open his offer to sell at a set price for a three-year period. Second, Steiner had the power to accept Thexton’s offer to sell by satisfying or waiving the contingencies and paying the balance of the price. The key sentence quoted above, however, vested Steiner with the right to terminate even if all the contingencies were satisfied, which led the Court to conclude that the agreement was an option contract. The Court perceived and explained a fundamental difference between a purchase agreement with specified contingencies, in which the buyer has the right to terminate if any of the specific contingencies are not waived or satisfied, and an option contract, in which the optionee has the right to terminate or not exercise the option regardless of whether any specific contingencies are satisfied.
The agreement was enforceable. Legally sufficient consideration is the glue essential to a legally binding and enforceable contract. Focusing on the instant in time at which Steiner and Thexton had struck their deal, the Court of Appeal reasoned that there was no consideration for the option. Steiner had not paid Thexton for the option, and Steiner’s expenses and efforts pursuing the parcel split and development approvals were incurred and undertaken after the agreement was signed. Moreover, in the view of the Court of Appeal, Steiner’s pursuit of the parcel split and development approvals did not benefit Thexton. The Supreme Court, however, saw it differently. Thexton had previously rejected at least one offer that would have required him to pursue the parcel split; therefore, in contracting with Steiner, he clearly bargained for Steiner’s promise to pursue the parcel split. In addition, the Court concluded as a matter of law that Steiner’s part performance of that bargained-for promise created legally sufficient consideration. Thexton was therefore bound and did not have the right to revoke the option he had granted to Steiner.
"If your agreement has the two classic features of an option, courts will view and interpret your agreement as an option, even if you have labeled it something else."
So what have we learned at the expense of Steiner and Thexton?
First, if your agreement has the two “classic features of an option,” courts will view and interpret your agreement as an option, even if you have labeled it something else. The first feature is that the owner agrees to hold the property open for sale at a set price for a specific option period; the second feature is that the buyer/optionee has the right to terminate or not exercise the option regardless of whether any specific contingencies are satisfied.
Second, if the buyer/optionee has paid the owner for the option—that is, to hold the property open for sale at a set price for a specific option period—the owner will not have the right to revoke the option before the end of the option period. This is the most certain approach to ensure you have an enforceable, irrevocable option.
Third, if the buyer/optionee has not paid the owner for the option, but the owner has bargained for the buyer/optionee to perform one or more specified obligations during the option period, the owner will not have the right to revoke the option before the end of the option period. Think twice about relying on this approach, however, given that it took six years and three levels of courts to resolve the Steiner v. Thexton question.
And fourth, if you have an agreement with specified contingencies, in which the buyer has the right to terminate only if any of the specific contingencies are not waived or satisfied, you really do have a purchase and sale agreement. But remember you still need the glue of legally sufficient consideration to bind the parties. Therefore, it’s still a good idea to provide that the seller gets to retain some portion of the deposit if the buyer terminates based on a contingency.
Mickey Maher is a real estate and business lawyer whose practice includes neighborhood and community retail and mixed-use centers; office and industrial park development, sales and leasing; purchases and sales of real property; reviewing and analyzing title-related matters; real estate financing; and advising a variety of businesses.Contact him at email@example.com.
Executive Committee Member Named One of 50 Most Powerful People in Real Estate
Doug Duncan, vice president and chief economist at Fannie Mae and a member of the Center’s Policy Advisory Board Executive Committee, was named to BusinessWeek’s list of “The 50 Most Powerful People in Real Estate” for 2010.
Duncan made the “Economist” section of the list for the economic, housing and mortgage-market forecasts the nation’s largest residential lender provides. Duncan has been at Fannie Mae since 2008.
USD Team to Compete in USC International Case Competition
The team will be led by faculty advisor John Demas, Esq., and include students Chad Black, Russell Condas, Matt Fargotstein, Eric Jauch, Molly Jones and Matt Reibert. Team members were selected based on their outstanding performance in real estate classes and their engagement in extracurricular real estate activities.
The invitation-only event, which is in its fifth year, is limited to 10 universities with leading real estate finance programs. Apart from USD, those participating in this year’s competition are: USC, the University of Wisconsin-Madison, the University of Colorado-Boulder, the University of North Carolina, the University of Texas-Austin, the University of Auckland and the National University of Singapore. Participating teams compete for cash prizes in oral and written presentations that address a real-world real estate problem posed by leading practitioners in the real estate industry.
The event format will feature teams preparing presentations in their home cities and then traveling to Los Angeles for submission of written materials and oral reports before panels of industry judges. During their time in LA, students also will participate in networking and social events and have their resumes included in a book that is widely distributed to the real estate industry.
USD Real Estate Alum Rises through the Banking Ranks
In just seven short years, USD School of Business Administration alum Kelly Souza has gone from recent college grad and intern to vice president and team leader of the San Diego Real Estate Banking Group within Wells Fargo, one of the largest and most recognizable banks in the country.
Souza attributes her career success to a combination of hard work, self-motivation, assertiveness, efficiency and a little bit of luck. Her passion for real estate also played a major role.
Souza was interested in real estate long before beginning college, thanks to the influence of her “investment-focused” parents. That inherent interest flourished at USD, where the business program and her real estate professors provided her a real life perspective of working in real estate. “We had regular contact with industry executives―not just textbooks,” she says.
It was during her senior year at USD that Souza participated in the “Shadow an Executive” program and met Jeff Reed, who at the time was office manager of Wells Fargo’s San Diego Real Estate Group and has since been promoted to executive vice president and heads Wells Fargo’s Real Estate Managed Assets Group. Reed, who is a member of the Center’s Policy Advisory Board Executive Committee, was so impressed by Souza that he hired her right out of college to be an analyst.
Souza’s career at Wells Fargo has progressed quickly since then. After multiple promotions, she is now vice president and team leader, where she directly manages many of the office’s largest clients and oversees approximately $400 million in loan commitments.
Souza’s favorite part of the job is helping to shape the San Diego community. “I love that I have the ability to hop in my car and drive around the city to see the projects I have helped to finance over the years―it’s very tangible,” she says.
Away from work, Souza enjoys sport fishing, traveling, snowboarding and wakeboarding. She especially enjoys spending time with her husband, Jordan, who is a captain of a local sports fishing boat.
Souza has been closely involved with the Burnham-Moores Center since finishing her last semester in fall 2003. She is a member of the newly formed Young Entrepreneurs Council of the Center’s Policy Advisory Board, which is a small group of high performers under the age of 35.
She is also one of the founding members of USD’s Real Estate Alumni Association and has been a panelist and employer at several Real Estate Career Expos, among other contributions. She stays involved with the university, she says, because she feels it is important “to give back to my alma mater and those who helped me get where I am today.”
Guest Lecturers Provide Insights in Grad, Undergrad Classes
On March 31, Borre Winckel, president and CEO of the Building Industry Association of San Diego County (BIA), and Bob Cummings ’91 (MBA) (pictured above), chairman of BIA, spoke to MSRE students in Professor Charles Tu’s “Sustainable Real Estate” class. The two discussed the state of the industry as well as their outlooks for the future. The following week, Dave Pogue,
national director of sustainability, institutional and corporate services of CB Richard Ellis, spoke to the class about sustainability trends and relevant case studies.
USD alum Bryce Lewis ’09 (MSRE), residential analyst of Boardwalk Development, and his employer Ron Bamberger, president and owner of the company and a member of the Commercial Real Estate Committee of the Policy Advisory Board, taught Dana Kuhn’s undergraduate “Principles of Real Estate” class a thing or two about foreclosure auctions by casting the students as bidders in a mock auction March 18. Small groups of students participated in the simulation, which was designed by Lewis, by looking at comps, estimating values of properties on an auction list and bidding on the properties of their choice. At the end of the class, a winner was determined by which group made the most profit.
Real Estate Undergrad Selected as USD Mortar Board Member
During his “Principles of Real Estate” class March 23, Giovani Marsco, a USD undergrad business student interested in real estate, was honored as a newly selected member of the Alcalá Senior Honor Society Chapter of Mortar Board in a ceremony traditionally known as “tapping.” Mortar Board is a highly competitive National Senior Honor Society that recognizes students who excel in three categories: scholastic achievement, outstanding leadership and dedicated service to the university and community.
Marsco, who is a junior, was chosen as a 2010-11 academic year member because of his dedication both to scholarship and service demonstrated through his involvement at USD and in the local community. He is president of his fraternity, Sigma Pi Epsilon, a recipient of the Trustee Scholarship, has received honors on the Dean’s List and has a cumulative grade point average of 3.6. Marsco has also participated in multiple community service projects through Cool Club at USD, the Walk for Hope to Cure Breast Cancer, and Best Buddies, among other organizations.
More than 25 students attended the second Real Estate Society meeting of the spring semester held on campus March 25. Real Estate Society graduate chair, Jennie Celeste, moderated the discussion between leading local investment experts Andy Pollin ’98 (MBA), vice president, North American Acquisitions of Pacifica Companies, and Gary Sabin, chairman and CEO of Excel Realty Holdings. The two discussed with the group the opportunities available in today’s market, debt issues and sources of available capital, as well as their strategies and expectations moving forward.
The Real Estate Society is a 200-plus member student organization that provides resources and information to graduate and undergraduate students who are interested in studying and pursuing careers in real estate. Meetings are held on the last Thursday of each month and feature real estate professionals who share their industry experience and insight with students.
director of residential real estate, spoke at the Associated Plastering and Lathing Contractors lunch meeting, held in La Mesa March 18, where he addressed the topic: “What is San Diego’s Economy Forecast for Contractors?” The association meets monthly to educate its members on new techniques and materials and to discuss general contracting.
Charles Tu, Norm Miller and Jeryldine Saville co-authored an article that appeared in the March/April edition of Commercial Investment Real Estate, the magazine of the CCIM Institute. The article, “Do Green Buildings Make Dollars and Sense?” focused on research conducted by the Burnham-Moores Center on the productivity levels of tenants in green buildings.
The Burnham-Moores Center for Real Estate’s Feb. 22 Breakfast at the BMC event featuring Federal Reserve Bank of San Francisco President Janet L. Yellen was further mentioned in a March 12 Los Angeles Times article and March 8 and April 5California Real Estate Journal articles.
The “Building Greener Communities in the San Diego Region” event co-hosted by the Burnham-Moores Center for Real Estate Feb. 9 was further mentioned on The FreeLibrary.com March 9.
An article on CNN.com, which quoted Mark Riedy on issues facing the commercial real estate industry, was further mentioned in a March 18 blog entry.