- MBA Real Estate Program
- Research & Media
- Areas of Research
- Public Policy Proposals
by Michael Barkman ’20
David M. Sherman is Senior Advisor and Co-Founder of Metropolitan Real Estate and Co-Director of the Paul Milstein Center for Real Estate. Mr. Sherman has more than 30 years of real estate finance and analytical experience.
Can you give some background on yourself and explain how you came to co-found Metropolitan Real Estate?
I have been working in real estate for 36 years in a lot of different capacities. I graduated from CBS in ’82 and went to work as a strategic planning associate at Paine Webber, an investment bank and brokerage. After doing a business plan for the real estate syndication group, I was offered the opportunity to be interim (and then permanent) CFO for that business. Then I worked in real estate investment banking, as a consultant doing real estate workouts in the early 1990’s, as a CMBS banker, and as a REIT analyst during the wave if REIT IPOs in the mid/late 1990s.
In the early 2000’s and up to about 2007, the number of private real estate fund managers was growing rapidly. The majority of the new entrants were highly focused, vertically integrated regional or property type specialists. I co-founded Metropolitan along with two partners in 2002 because we saw an opportunity to aggregate capital from high net worth families and smaller institutions to invest in diversified portfolios of these specialized funds. We were a first mover in the multi-manager space, and we raised quite a bit of capital between 2002 and 2007. Through the financial crisis we continued to manage our current business but coming out of the recession the demand for private real estate funds-of-funds had declined significantly, so we shifted Metropolitan’s business to focus on secondaries – that is, buying limited partner interests funds managed by the same groups with which we had previously invested. Based on the scope of the relationships we had developed in our funds-of-funds business, and the access to information that this provided, we believed that we had a real competitive advantage in the secondary space.
How did the relationship with Carlyle come about?
Around the same time, we also began leveraging our relationships with over 100 fund managers to invest directly as co-investors in single properties and portfolios. We grew both the secondary and co-investment businesses for several years ourselves, and eventually in 2013 we realized that there would be benefits to scale more quickly as part of a larger platform. With our advisors, we conducted an extensive search for the right partner and ultimately found The Carlyle Group, which was looking to expand its multi-manager business at that time; in November 2013 we became a wholly-owned subsidiary of Carlyle.
We continued to run the Metropolitan business as it had been run previously but benefited from the expertise of Carlyle and their expansive platform. Metropolitan today is a global business with offices in New York, London, and Hong Kong and investors and investments spanning the US, Europe, and Asia. I continued as President of Metropolitan until early this year, when I stepped back from day-to-day management and handed over the responsibility for running the company to two of Metropolitan’s senior executives, Sarah Schwarzschild and John So (who are doing an excellent job). I am now the Chairman of the Investment Committee and Senior Advisor. In this role I am still involved in all of the investment activities and am able to spend more time mentoring some of the younger investment professionals.
You were appointed Co-Director of the Paul Milstein Center for Real Estate at Columbia Business School in 2016. Can you tell us about you came to this role and the work you do?
I have maintained my relationship with CBS since I graduated in ’82. In the ‘80s and ‘90s I was a guest lecturer and from 2000 to 2007 I was an adjunct professor teaching Real Estate Finance and Real Estate Capital Markets. Then in 2016, Lynne Sagalyn retired as Director the Paul Milstein Center and Chris Mayer and I became Co-Directors. While Chris and I share responsibility for managing all aspects of the program, Chris tends to be more focused on the in-class activities and on dealing with university administration. I tend to be more focused on external relationships, primarily with alumni and with industry. There are two main groups through which we deal with alumni and industry, the Forum and the Circle. The Forum is a small group of leading real estate executives who meet once a year on campus to discuss issues of strategic importance to the real estate industry with their peers and the faculty. The Forum has always been very strong, and the current focus is to continue building diversity and a bringing in the next generation of industry leaders.
The Circle is a larger organization of CBS alumni working in real estate, which today is comprised of over 80 members. When I became Co-Director in 2016, the Circle was much smaller and less active. To re-energize the Circle, we assembled a Circle board that met and set strategic priorities for the organization. The board then took responsibility for building content and events around those priorities, increasing the number of events from around two per year to about 12 now, which in turn has helped drive membership.
Circle events include breakfast discussions and panels covering topics such as new rent regulation, real estate blockchain applications, co-living, and more, as well as site and property tours and meetings with a wide range of real estate CEOs. The Circle also sponsors the annual Real Estate Symposium, which is a full-day educational event with panels covering a wide range of real estate topics led by industry leaders and subject matter experts. We expect the Circle to continue to grow over the coming years.
Aside from the Forum and Circle, the Paul Milstein Center (with a lot of work from Kristin Svenningsen, the Center’s Managing Director) recently launched a mobile app that connects the CBS real estate alumni community via a professional social network platform. Currently 800 people have signed up an we expect to reach well over 2,000 members over time.
Many investors would say we are late in the economic cycle. Where do you see the biggest risks of a downturn in the real estate markets?
We are definitely late in the cycle in my opinion, although the shape of this cycle has been very elongated (in part due to the very slow early recovery out of the GFC as the government worked to stabilize the markets.) Still, in most markets rents levels are above prior cycle peaks, occupancies and relatively full and price levels are reasonably high. As economies slow globally, we see an increasing risk of recession in many markets. At the same time, levels of new supply have generally been moderate, interest rates are likely to stay relatively low, and we are hopeful that any real estate correction will be relatively mild.
How does this view inform Metropolitan’s strategy?
At Metropolitan, for almost any new investment that we plan to hold for 5+ years we expect that there will be some level of correction during the holding period. That has driven us to look for less cyclical assets and to avoid assets that tend to require a lot of capital and perform poorly in a recession. So that leads us to look at asset classes with strong underlying demographic drivers such as housing or health care properties. It also leads us to more unique opportunities; for example, we recently invested in a studio property in Los Angeles. The studios create digital content, and the site has the capacity for significantly more density (in the form of “creative” office). The entitlement work may take several years, but the property meets a growing need for a rare office/studio mixed-use site. Meanwhile we also look for income-focused investments such as apartments in Tokyo where we hope to earn high single-digit cash-on-cash returns in a relatively stable asset class. That being said, we are shifting to a more defensive portfolio in general.
Michael Barkman is an MBA student in the Class of 2020 with a concentration in Real Estate. He serves as Co-VP of Alumni & Mentorship on the Board of the CBS Real Estate Association. This past summer he interned with Welltower, a senior housing and healthcare REIT, and will be joining the company as a full-time Investment Associate after graduation. Prior to Columbia, Michael worked in investment banking in the M&A group of Mizuho Securities USA, advising on cross-border mergers and acquisitions. Michael graduated from the University of Denver in 2014 with a BS in Business and Economics.