REA Members Trek to Chicago
One of America’s leading markets was the destination for the Columbia Business School Real Estate Association’s fall domestic “trek.” On November 3-5, twenty MBA students along with faculty and administrators traveled to Chicago to gain a sense of the market landscape and how Midwest-based companies are taking advantage of local, national, and international opportunities. The group had informational meetings with real estate developers, investment managers, and real estate investment trusts (REITs).
The group met with different REITs focused on various asset types. The trip started with a great discussion with various Sam Zell companies, including Equity Group Investments, Equity Lifestyle Properties, Equity Residential, and Equity International. David Helfand, Co-President of Equity Group Investments, hosted a breakfast for the group at the Waldorf Astoria. Helfand provided the group with an overview of EGI’s plans for repositioning the 188-key Waldorf Astoria hotel. The group also had the opportunity to tour some of the hotel renovations.
David Neithercut ’82, CEO of Equity Residential, welcomed the group to the Equity offices. The group had the rare opportunity to meet with Zell, who provided an in-depth history of the real estate industry and the pivotal role of REITs. As he simply put it, “necessity is the mother of invention,” and this was the impetus for REITs’ important role in the industry today. Despite their inception in 1958, REITs were a largely untapped vehicle until the early 1990s. During this time, REITs provided access to liquidity when traditional capital sources contracted. Zell emphasized the importance of value and how liquidity is central to achieving this. The group also learned how Zell’s strategy of entrepreneurial risk-taking and decision-making is being executed in Equity Group Investments, Equity International, Equity Residential, and Equity Lifestyle.
Equity International CEO Tom Heneghan and Equity Lifestyle CEO Margaret Nader, along with Zell, provided the group with important Zell fundamentals such as:
Write with a crayon: reduce complexity to its essence.
Own your mistakes: be accountable and responsible. Failure is a part of succeeding.
The enemy is “without”: an organization must have transparency and collaboration within.
70 of something is better than 100 of nothing: do not get stalled in the decision process by overanalyzing.
Conventional wisdom is nothing but a point of reference: when everyone is going right, look left.
Michael Berman ’86, chief financial officer of GGP, along with development and investment representatives provided an overview of GGP’s strategy post-bankruptcy. The firm focuses on building a strong core culture and acquiring best-in-class retail. An example is the company’s current redevelopment of the Ala Moana Center in Hawaii, which generates $1,500 of sales per square foot. The company is also focused on growing its year-to-year NOI through rent growth of about 2 to 3 percent, expense management, and increased occupancy.
Later that evening, Berman and Neithercut hosted the group at a local sports bar to network and enjoy Chicago sports. Both members of the school’s MBA Real Estate Program Advisory Board, they were key champions of this trip and provided valuable introductions in an effort to expand employment opportunities and students’ horizons.
Ventas, a healthcare REIT, continued the theme of adding value through liquidity. Debra Cafaro, chairman and CEO, and Ray Lewis, president, discussed the tremendous opportunity within the $1 trillion healthcare real estate market, only 10 percent of which is owned by public companies. The group learned about Ventas’s strategy to continue predictable returns through contractual rent increases, reinvestments in existing properties, increased operator efficiency, and focused acquisitions in high-barrier-to-entry markets with high median incomes. Members of the Ventas management team joined Cafaro and Lewis, and the speakers also provided insight into how the company is doing more than just acquiring strategic properties. Ventas acquired Lillibridge, a medical office building developer, to expand its platform and be better positioned to capture private assets that transition to the public space, for example.
Local development firm McCaffery Interests conducted a site tour of the company’s 600-acre Chicago Lakeside project for the group. McCaffery has partnered with United States Steel Corporation, the former owner of the site, to develop a mix of commercial, residential, and retail space, a high school, and a marina. The multiphase project is projected to take 25 to 45 years to complete. Edmund Woodbury, CEO, and Nasutsa Mabwa, senior project manager, provided the group with a detailed overview of the economic and community impact this project will bring to the Southshore neighborhood, which has faced many challenges since US Steel South Works closed in the early 1990s. The project will incorporate next-generation infrastructure technologies for energy, water, and transit.
Historic Properties Renewed
Famed for its architecture, Chicago has more than 17,000 historic and landmark buildings. The group had the opportunity to tour two landmarks: the Wrigley Building and 330 N Wabash. Zeller Realty’s Janice Goldsmith, president of Zeller Development, and Ari Glass, executive vice president, led a site tour of the Wrigley Building, highlighting some of the improvements Zeller has undertaken to repurpose ground-floor space for retail use and restore office usage. Indeed, in the past six months, Zeller has succeeded in leasing an aggregate of 100,000 square feet to a number of multifaceted and well-regarded retail tenants. The Zeller representatives also provided an in-depth overview of the role of historic tax credits in funding the project, along with various partnerships including federal agencies like the National Park Service to county and local commissions.
Jeffrey Patterson, CEO of Riverview Realty Partners, a public REIT focused on office assets, led the group through a case study of 330 N Wabash. The office building was the last to be designed by famed architect Ludwig Mies van der Rohe and, as such, became the youngest building to be landmarked in Chicago. Riverview leveraged the landmark status to receive historic tax credits to help reposition the building. On the tour, the group learned how Riverview increased occupancy from 30 to 95 percent, with key tenants including the Langham Hotel and the American Medical Association.
Representatives from Heitman shared information on the challenges and opportunities of core and value added investments. The firm was open about changes they have seen in the market since the Great Recession and changes in investor preferences for more separate accounts. Additionally, the firm provided an overview of their international outlook, which currently only includes Asia and Europe.
The group toured local Chicago attractions like Millennium Park to learn more about Chicago architecture. Some of the tour highlights included the Cloud Gate sculpture known as the Bean and the Jay Pritzer Pavilion.
Thanks to Trent Acuff ’14 and Scott Meyer ’14 of the Real Estate Association for organizing a packed itinerary with this great variety of company visits and site tours, to alumni Michael Berman and David Neithercut, and to the trip facilitators from the Paul Milstein Center for Real Estate and the Career Management Center. Students were accompanied by Professor Lynne B. Sagalyn, Earle W. Kazis and Benjamin Schore Professor of Real Estate and director of the Paul Milstein Center for Real Estate; M. Leanne Lachman, executive-in-residence at the Paul Milstein Center; Kate Kerrigan Esq., administrative director of the Paul Milstein Center, and Mark Jordan, associate director, business development, Career Management Center.
Photo: REA trip participants visiting 330 N Wabash, Mies van der Rohe’s last designed building.