There’s an old adage that it’s never a bad time to invest in real estate. But at the University of North Carolina-Chapel Hill’s Kenan-Flagler Business School — one of the top schools in the United States for a real estate graduate education — the standing order since the start of 2020 has been “pencils down” on new investments through the student-run private equity fund. And as the coronavirus pandemic continues to disrupt B-school schedules and programming, the pencils are likely to stay down at UNC’s Wood Center for Real Estate Studies — at least for a while longer, says Dave Hartzell, director of the Wood Center.
“Some people have contacted us, some sponsors have contacted us to see if we’re interested in new investments,” says Hartzell, the Steven D. Bell and Leonard W. Wood distinguished professor in real estate who has taught at UNC for 32 years. “But given all the uncertainty and where we are, we haven’t invested any capital since right around the turn of the year.
“I don’t know what people are saying these days, but we’ll be back. I’m generally hopeful. I’m not sure there will be the same opportunities there were coming out of the global financial crisis of 2008, because I sense there’s a lot of money out there — and a lot of people on the sidelines that are going to swoop down and probably get the best opportunities. But we’ll be back. We’ll be back in business before too long, for sure.”
SALARY RANGE FOR REAL ESTATE MBAs: $58K TO $180K
Poets&Quants has compiled a list of the top schools in the United States for real estate MBAs. The list — see Pages 3, 4, and 5 — is in no particular order, owing to the wide range of programs on offer, from electives to specializations to on-campus centers dedicated to the industry. How many MBAs from the top schools go into real estate? While it has never been (and probably never will be) the most popular destination for B-school grads, real estate finance, real estate law, real estate investment, asset and property management, sustainable development, and all the concomitant categories and multidisciplinary pursuits are a consistently lucrative avenue of MBA interest. Moreover, the principles of real estate, one dean at a prominent business school says, are “essential for managing global and distributed organizations.”
By far the top school for real estate as measured by the percentage of MBA class working in the industry is UNC Kenan-Flagler, which reported 12% of the Class of 2019 employed in the field, up from 11% the previous year. Wisconsin School of Business is the only other top U.S. B-school in double digits, at 10%. An estimated 30 UNC grads went into real estate last year, second only to Columbia Business School, which had a much smaller percentage but a much larger graduating MBA class.
At 10 schools that publish the data, average base salaries for MBAs in the field range from $58,000 on the low end at the University of Michigan (see page 2 for more on the Ross School of Business’ big new investment in a real estate center) to $180,000 at Columbia. Both UNC and Northwestern University Kellogg School of Management report $150,000 as the upper end of their salary range; USC Marshall School of Business reports an upper end of $163,000. In average base salary, UCLA Anderson School of Management, home of the Ziman Center for Real Estate, reports the highest: $130,000. See the chart below for more details.
Salary, says Dave Hartzell, is not the foremost consideration for real estate MBAs at UNC Kenan-Flagler.
“We aren’t as interested in starting salary, as many of our students get equity in deals/funds at some point after graduation, which leads to much higher net worth in the longer term which is more important,” Hartzell tells Poets&Quants.
IN 12+ YEARS, $12.2 MILLION RAISED THROUGH 47 INVESTMENTS
Since 2007, the Kenan-Flagler Business School Foundation Real Estate Fund has raised $12.2 million through 47 investments in 21 states and 11 property sectors. That’s an average of more than a quarter-million per investment. The fund has had 116 managers and 104 unique investors in that time. Currently the fund is active in 25 to 30 investments, Hartzell says.
Unlike many of its peers, the Wood Center is not a research center, Hartzell says. “Funds all go in some way to support students. We are completely focused on the student experience, in terms of assisting with real estate admissions decisions and managing career strategies for our students,” he says, adding that the MBA’s real estate concentration is taught as an applied corporate finance concentration, meaning it is strongly analytical. Highlights of the program include a Global Immersion elective, alumni mentoring, funding for student development projects, certification in the Argus commercial real estate program, career treks across the U.S., and funding to join real estate associations.
Over the past seven years, 40% of UNC real estate MBAs have gone into development, 22% into investment management, 17% into investment banking, and 20% into real estate investment trusts or other career paths.
‘IT WAS USUALLY OUR FAULT’
Dave Hartzell, 64, remembers the last time UNC’s Wood Center went “pencils down”: 2008. That, however, was a much different kind of downturn.
“I started in this business in the ’70s, and I’ve been in the academic world, with side jobs in the real world, since ’84,” he says. “So my gut reaction is, Hey man, it’s always a good time to get an MBA in real estate. That’s my knee-jerk reaction. And I believe that’s the case. And we are in a downturn this time for sure, but it feels a whole lot different than previous downturns to me.
“I always use this example when I’m talking to students who are worried. Even before this particular downturn and the way it’s forced everybody to be isolated, there were signals perhaps in the real estate industry that things were getting really pricey. And some of the debts, the debt side of the business, was getting out over their skis a bit in terms of rolling further out on the risk spectrum. And I got a lot of questions from students and others about, Well, do you think we’ll see a downturn? And my knee-jerk reaction is always, Yes, we will, because that’s just the way the business works. But if you look at the last three downturns, it was mostly because of what people in real estate did, right? Whether it was lending in the global financial crisis or taking advantage of tax breaks in the late ’80s, early ’90s.
“It was usually, to some extent, our fault! And when it hit people, there was uncertainty about everything: pricing, lending markets — and to be sure, a lot of that stuff exists now. But the real uncertainty was people didn’t have jobs, had no prospects for jobs, there was a continuing flow of layoffs. And the market activities and transactions completely ground to a halt. And while there is some of that now, I think people feel a lot more bullish on sort of rolling through this more quickly.”
The consensus, he says, seems to be not that the end is necessarily in sight, but that there will be an end — that people will be called back to jobs. The pain in some real estate sectors like hotels and retail is very real, Hartzell adds, but that pain is easing as states reopen.
“The example I’ve used in the past is that I had some of my best students in the fall of ’07,” he says. “They came to school in that summer. As they were in there two years, they got pretty good internships I’d say. And over that two-year period, basically the world fell into a craphole. And they came out and the jobs that our kids were getting before the global financial crisis weren’t there, in private equity or in development, which had pretty much slowed.
“But I would say that the people who stayed in, the true believers I call them, in real estate, they learned so much, right? They didn’t get private equity jobs, but maybe they worked for a workout firm, workout for a lender or something — and if you do that you just learn so much about the asset itself. Or asset management maybe, that’s another great way.
And we were very fortunate in that we were able to still help our students find opportunities for jobs. Those people, those people are some of our most successful alums now.”
‘AN AWESOME LEARNING EXPERIENCE’
The 2007 fund ended after 10 years. The second fund, which has several assets, expires in late 2021. Fund three has about 18 assets. The Wood Center is now on its fourth fund, Hartzell says, with a number of investments, “but we still have some dry powder to invest should the opportunities come up.”
Hartzell says he tries to serve as a kind of chairman of the board, giving general direction while giving student managers as much authority and responsibility as possible. “I sometimes have to step in as CFO or sometimes COO, or in some role,” he says. “But I try to give the students the most realistic experience that they would have on a private equity fund, and just try to keep them between the shoulders on the highway. And so far, they have done immensely well.”
The school’s funds include hotels, senior housing facilities, retail, office spaces, multifamily dwelling units, self-storage, and more, mostly in partnership — “We’ve got pieces, we don’t own the whole thing obviously.” The beauty of it, he says, is the students raise capital for investors, “which is great and I think unique. They go through due diligence and make recommendations to an investment committee. And I’m the faculty adviser and also on the investment committee.
“Once we have ownership of some portion of the asset, they become asset managers and stay on top of the sponsors and make sure that they’re stewarding our capital as well as possible. And then we’re involved in the disposition. So they write quarterly reports, they deal with owners, they work with our lawyers, and so on.
“It has provided an awesome learning experience that I don’t think I ever simulate in a classroom with a case. Every three weeks we’ve had a call with our investment committee talking about assets that are on our watch list that may face potential difficulties. The students are in touch with the sponsors trying to get a feel for collections and rent deferrals, or abatements. How tenants are paying and which tenants are in trouble and so on, which is just a tremendously unique experience.”