Normally I do not like to use this letter for comments on real estate markets and issues. This month, however, I could not resist because the sub-prime mortgage market gave us so many opportunities to teach our students.
While we pride ourselves on the rigorous and relevant education we provide to our undergrad and graduate students, there is no substitute for the lessons learned from the marketplace. Many, if not most, of our students are young enough that a cyclical downturn in the real estate industry remains pure theory to them — something they have been told can happen, but has yet to occur in their adult lifetimes. The current melt-down of the sub-prime mortgage market is a "prime" example of risk not being priced properly, which led to an unfortunate domino effect on the home-building and mortgage industries.
At the same time, disaster for some creates opportunities for others, whether in being able to purchase land, houses or mortgages at distressed prices or hiring away exceptional talent from industries and firms that are hurting temporarily. These difficult circumstances also help us in our teaching: In the classroom, we now can demonstrate with current illustrations that real estate remains a cyclical industry and that the pricing and underwriting of risk is critical to success and/or failure. If we do our jobs properly, the distress in certain sectors of today's real estate markets will provide valuable lessons for our students and better prepare them for entering the industry with their eyes wide open.
The next wave of migraine headaches for some sections of the real estate industry could come from brownfield development on formerly contaminated land and inadequate due diligence processes in current real estate transactions caused by too-tight time deadlines. As the Center's reputation continues to grow, increasing numbers of industry professionals are contacting us, and pulling us aside at meetings, to express misgivings about certain aspects of what's transpiring in real estate in this region. I heard an earful about subprime mortgages three and four years ago. I'm hearing rumblings about unrecognized risks in brownfield development and the due diligence process today.
One of our goals is to assess the anecdotal stories we hear, consider research studies if appropriate, bring them to our four Policy Advisory Board committees for vetting, and raise them to a level of public discussion if we think additional exposure of the issues will advance the well-being of this region and its economy. I love being able to work with my colleagues, committee members and other volunteers to educate our students and add value to the community at large. It's what we do best.
Dr. Mark J. Riedy
Construction Management Roundtable Features "Design Build" Approach
Students in the MSRE program got an inside look at the design build project delivery method during the second roundtable of the spring semester, held March 20 and 23. The roundtable series was created to provide flexibility in the MSRE curriculum by featuring either timely real estate issues or trends or aspects of the industry that do not merit a full semester's course. Students participate in one roundtable in the fall and two in the spring and receive one credit unit for each.
MSRE students (from left) Derek Jensen, Andrew Lurker and Jason Luker take a break from their hands-on training at Highland Partnership.
This spring's second roundtable provided students direct interaction with the general contracting and construction management side of the real estate industry — with a particular focus on the design build approach adopted by Highland Partnership Inc. among others. The design build model employs a more integrated approach, by including the architect as part of the team with the general contractor serving as the team leader. The model can yield faster results since the design phase and construction phase overlap.
During the two-day seminar, Ian Gill, CEO of Highland, provided an overview of a general contractor's role, as well as the design build approach. Students also toured two design build projects in San Diego, which Oliver McMillan is building and for which Highland is serving as the general contractor. At the end of the two-day seminar, students worked in teams of four to complete a scheduling exercise on a mixed-use project using information gathered during the workshop.
The USD Real Estate Society hosted three industry professionals March 13 in a discussion of the ethical issues involved in real estate. With MSRE student Tony O'Neill moderating, Barbara Cambon, Hank Cunningham and Keith Johnson shared with the 20-plus members in attendance their views and experiences on the ethical issues they had faced during their careers.
Johnson, co-founder and vice-chair of Fieldstone Communities, advised the undergraduate and graduate students present: "If you ignore the consequences and just base your decision on what you know is right, then you'll do the right thing." Johnson said that Fieldstone asks its employees to carry with them a card that highlights the values the company espouses.
Barbara Cambon, former director and chairman of the board of the Pension Real Estate Association, said that she had dealt with a number of ethical issues head-on during her career in institutional real estate investing. Cambon said it was a function of "the perks that come along with being around huge pools of money." She says she once received a package containing plane tickets to Paris and pre-paid dinner reservations. Her response: "I closed it up and sent it right back."
And while her situation was somewhat unique, Cambon said that a universal ethical issue is the tendency for people to exaggerate on their resumes. "It always catches up with you," she said. From her observations, "In every case, the employees lost their jobs," regardless of their length of tenure.
In all ethical considerations, Cambon said that she continues to abide by the "headlines test" — would she be comfortable seeing whatever course of action she took portrayed in the newspaper the next day?
Johnson encouraged the students to explore a potential employer's ethical standards before accepting a position. "As you are interviewing for a job, it should be critically important for you to assess the ethical environment of the company upfront," he counseled.
Hank Cunningham, vice president and senior client manager in Bank of America's San Diego office of Community Development Banking, advised students that their reputation in the real estate industry will enter the room before they do. "The best path is always to do what's right, he said, "you'll be rewarded in the end."
A dozen 3- and 4-year-olds from USD's Manchester Child Development Center visited the Burnham-Moores Center for Real Estate March 27 as part of the family week for Jason Tu, son of Burnham-Moores Center associate professor Charles Tu.
During their time in the Center, the students visited with faculty members, and tried the Center's classroom on for size. Jason took a cue from his father and offered an insightful classroom lecture on the non-refereed publication, "Pig Picnic" to his classmates, which included Mark Gin, son of Alan Gin, associate professor in USD's School of Business Administration. After a snack, the students took the tram back up to the main campus.
Seventy students and 20 companies took part in USD's Fifth Annual Real Estate Career Expo, held March 15 in USD's Hahn Center. Feedback from both employers and students was extremely positive about the event, which has already resulted in several internships and job placements.
Students valued the one-on-one interaction they had with potential employers, while employers praised the high caliber of undergraduate and graduate students attending. "It was a high-quality group," says Lisa Partain of H.G. Fenton Co. "I look forward to continuing our partnership with the Burnham-Moores Center."
A record number 264 people attended USD's 2007 Scholarship Appreciation Luncheon held March 27 in the John B. Kroc Institute for Peace and Justice. Eighteen real estate students, donors and guests took part in the ceremony, which serves both to recognize the donors for their contributions and to connect them with the students who are benefiting from their generosity.
The Burnham-Moores Center for Real Estate is committed to delivering outstanding education, industry outreach, career placement, and research services to advance socially responsible leadership in real estate.
University of San Diego, 5998 Alcalá Park, San Diego, CA 92110-2492