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Winter 2003 CalBusiness  
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Bricks and Mortar Boards

What are the three most important factors for success in real estate?

If you were thinking of the cliché answer “location, ...” you wouldn’t be wrong. But you would also be right if you guessed “Haas, Haas, Haas.”

The reason is that the Haas School of Business is home to one of the top ranked real estate programs in the nation. The US News & World Report ranked the Haas School’s real estate program second in the nation in its latest ranking of such programs in September 2000. And the program’s impact in three key areas – teaching, research, and outreach to the real estate industry – has been marked by a consistent string of successes and accomplishments. The program has evolved and grown markedly over the past two decades to become a leader in the field, as well as a top producer of talent for the industry. A few examples:

  • A team of six Berkeley MBA students won first place at the inaugural national Real Estate Finance Challenge last fall at the University of Texas, Austin, sponsored by Goldman Sachs, JP Morgan Chase, Merrill Lynch, Bear Stearns, and Wells Fargo. The competition attracted 12 teams from the nation’s leading business schools for the preliminary round, including Berkeley, Harvard, Stanford, Wharton, Kellogg, Cornell, UCLA, Michigan, Chicago, NYU, Columbia, and UT Austin. The Berkeley team won out against Harvard and UT Austin teams in the final round, taking home the $5,000 cash prize.

    This win is the latest in a string of victories by students in the Haas School’s real estate program. Previous successful competitions included the NAIOP Real Estate Development Challenge and the Bank of America Low Income Housing Competition.

  • Every fall, Professor Kenneth Rosen presents his annual real estate and economic forecast, widely considered definitive among real estate professionals around the nation, at an annual symposium held at the Pebble Beach resort on the California coast. Invited guests frequently include not only the center’s advisory board members but also thought leaders and figures of the state. Political leaders Governor Gray Davis, former Governor Pete Wilson, Oakland Mayor Jerry Brown, San Francisco Mayor Willie Brown, and former national security adviser Sandy Berger have joined industry luminaries from Morgan Stanley, CB Richard Ellis, Bank of America Securities, and Goldman Sachs and Co.

  • Cutting-edge research by real estate faculty sheds light on a wide range of current business and economic issues. For example, a recent study by Professor Dwight Jaffee found that the collapse of the terrorist insurance market and the subsequent turmoil in the real estate and airline industries after the events of September 11 were the result of insurance firms’ aversion to covering large-scale catastrophes. “Temporary government intervention would help revive the terrorist insurance market after an event as extreme as the Sept. 11 attacks,” says Jaffee, “and help stabilize affected industries.”
    Closer to home, the work of Professors Jaffee and Kenneth Rosen and a group of staff economists, has contributed significantly to our understanding of the effects of the dot-com boom and bust on California’s economy.

The Haas School Real Estate program has risen so quickly in prominence because it is so well-rounded and active. In addition to teaching real estate at the undergraduate, MBA, and Ph.D. levels, the program encourages students’ open access to faculty and industry leaders and places a strong emphasis on research into both theoretical and practical aspects of the real estate industry.

“You have to ask, what should a real estate program do?” says Real Estate Development Professor Robert Edelstein, who came to Berkeley in the mid 80s from a position at University of Pennsylvania’s Wharton School. “You need good programs at the undergraduate, MBA, and Ph.D. levels, outreach, scholar development, and research. We do each of those at the frontier. We may be the only institution that does all of these things simultaneously.”

Working Towards a Common Goal

“Real estate is one of the industries that possess enduring wealth,” says Kenneth Rosen, California State Professor of Real Estate and Urban Economics. “It is involved in every aspect of our lives – in the form of housing, office buildings, public buildings, and even rooms on college campuses.” At Haas, the all encompassing issues in the field of real estate are addressed by the academic Real Estate program in tandem with the Fisher Center for Real Estate and Urban Economics, a highly respected research and industry outreach center.

Together the Fisher Center and the Real Estate program have become a leading wellspring of strategic thinking about where the industry is going. The Fisher Center is one of the major university research centers in the US for studies of real estate markets, financial institutions, and urban and regional economic topics. “The center links the program to all aspects of real estate, from the money that funds it to the regulations that control it,” says Cynthia Kroll, senior regional economist for the Fisher Center.

The Fisher Center is chaired by Rosen, who was recruited in the late 70s from his post as a professor at Princeton. Rosen was inspired by the approach of the joint MIT/Harvard program, which funded a similar research center exclusively funded by private donors. He decided to re-establish the center in 1979 and fund it in the same manner, since state funds were sparse at that time. Rosen convinced 15 companies to be part of an advisory board and contribute each year toward the center – that number has since grown to about 100 companies on the board, all of whom are luminaries from the public and private sectors, including policy makers, industry leaders, and academics.

Next to the faculty, says Jaffee, Willis Booth Professor of Banking, Finance, and Real Estate, the most critical asset of the program is the Fisher Center “which provides access to real estate professionals in the industry, and provides financial support for our research activities.”

In 1995, Don Fisher, BS 50, founder and chairman of the Gap, provided significant funds to the real estate center, and it was subsequently named in his honor. Fisher’s interest in the center stems from his belief that his work in real estate before starting the Gap, played a role in the success of the company.

Current members of the board include Douglas Abbey*, MCP 79 (City & Regional Planning); Gerson Bakar*, BS 48; Jon Reynolds, BS 56, MBA 59, CEO of Reynolds & Brown, a commercial real estate firm; Lynn Sedway*, MBA 76; and Warren Spieker*, BS 66 (*see sidebar).

Board members attend annual conferences held at Carmel’s Pebble Beach resort that focus on issues facing the economy and the real estate industry. The event presents leading-edge research and thought-provoking keynote speeches by the likes of ex-CIA chief Jim Woolsey and real estate legend Sam Zell. “This lets business people know that Berkeley is really plugged in to what they are thinking about,” says Rosen.

“The board is made up of 100 of who’s who in real estate. They hire people, which helps our students, which helps us get good students,” says Edelstein. “The program and the center create relationships that are synergistic and amplify relationships in the future.”

Bringing Reality to the Classroom Bringing the realities of the profession into the classroom is one of the key objectives of the real estate program, be it at the undergraduate, MBA, or doctoral level. Haas professors and seasoned professionals combine their respective areas of expertise to teach a balance of theory and practice in courses ranging from housing and urban policy to financing and investment analysis.

The Fisher Center’s industry relationships were put to good use this past year when the Real Estate program created a new Real Estate Strategy course based on the case method.

Advisory board members and industry partners were asked to help develop a set of Haas School cases. Says Professor Nancy Wallace, chair of the Real Estate faculty, “I asked them to provide us with a best deal or worst deal or a really interesting deal and let us bring that into the classroom.”

Wallace worked with board member Victor Coleman, president and COO of Arden Realty Inc., a real estate investment trust, on a case on “green building” – the movement to build corporate buildings where more environmentally friendly design goes hand-in-hand with future cost savings. Another case for the class focused on a mezzanine finance deal and was written up by advisory board member Diane Olmstead, executive vice president of IStar Financial.

“Cases are powerful,” says Wallace. “The goal is to get students actively thinking on their feet with their peers. The cases are current projects with real relevance ...they run the gamut of the real estate industry.”

Research: Theory and Practice

Research, one of the ultimate priorities for the program and the center, is conducted by the faculty and Fisher Center economists. While the real estate faculty focus on more theoretical, mathematical modeling, the economists of the Fisher Center study the activity in real estate markets and urban economies.

Each faculty member’s area of focus is unique. Rosen, who has been widely quoted in the press for his forecasts on the commercial and residential real estate markets in California, creates models that are seen as some of the more accurate predictors of the markets. Wallace works on housing price indices and real option models as well as mortgage pricing, pre-payment contracting, and prepayment models. The US Department of Housing and Urban Development commissioned Jaffee to study the privatization of government-sponsored mortgage enterprises Fannie Mae and Freddie Mac. Jaffee has also done extensive research on earthquake and catastrophe insurance. Edelstein focuses on international real estate markets and how they interact and react to changes in the world economy; US real estate cycles; and optimal strategies for REITs (the real estate equivalent of mutual funds). New faculty member, Assistant Professor David Davidoff, examines how individual investors manage risk in their real estate and financial investments.

In addition, Wallace, Edelstein, and Quigley are all working on different aspects of the problem of creating reliable real estate indices for economic modeling. “Real estate assets are incredibly important to households around the world and lead to all kinds of effects that we don’t understand well because we haven’t monitored them,” says Wallace. “Alan Greenspan is concerned about the fact that policy decisions are made and we don’t have monitoring mechanisms, so the National Bureau of Economic Research created new initiatives to encourage academic study into models for measuring the real estate markets.” In addition to their work domestically on this issue, all three are working on developing housing price indices around the globe – Edelstein in Asia, Quigley in Sweden, and Wallace in France.

Going Head-to-Head on Real World Issues

For a select group of real estate students, another chance to work on real-world problems comes from the four competitions in the real estate program: the National Association of Industrial and Office Properties (NAIOP) Real Estate Development Challenge; the Bank of America Low-Income Housing Challenge; the Securities Case Competition; and the National Real Estate Challenge at UT Austin. “These competitions focus student energies on something very concrete, and highlight what the program can accomplish for them, integrating what they have learned and contacts they have made with industry,” says Wallace. Haas teams won the NAIOP, the BofA, and the UT Austin challenges this year.

The NAIOP Challenge, which was founded by Adjunct Professor Stephen Chamberlin, a real estate developer in San Francisco and Philadelphia, Penn., is a development competition with Stanford University that assigns teams of five students to a site that has problems, e.g. toxic waste or a history of failed developments. Thus far Berkeley has won seven times, Stanford five.

Sponsored by Bank of America, the Low-Income Housing Challenge is a competition among several west coast graduate schools in which interdisciplinary teams create a low-income housing proposal. The winning 2002 Berkeley team exemplified the collaborative nature of the competition, including students from business, planning, and architecture.

In the Securities Case Competition, sponsored by Merrill Lynch, six schools (Berkeley, MIT, Wharton, Columbia University, Carnegie Mellon, and the University of Chicago) compete in the area of fixed income pricing. The teams are given just five hours to come up with a securitization proposal for a client problem. “It’s a real pressure cooker of activity and it uses a lot of their skills,” says Wallace. Haas School teams have placed in the top three in the past three competitions.

The student-run Berkeley Real Estate Club offers additional opportunities for students to develop real-world skills and contacts in the field. In addition to helping form the student teams for competitions, the club organizes firm nights, alumni mixers, speakers, volunteer days with Habitat for Humanity, and site visits to developments like San Francisco’s new Ferry Building at Pier 1 or San Jose’s multi-family community at Museum Park.

“With a 100 dues paying members, BREC is the most active student club on campus on campus,” says Laura Billings, the club’s president in 2002. “And the faculty certainly welcomes the students’ enthusiasm. Says Rosen, “We need the next generation of great people to take over and build on what we’ve done.”

Real Estate Faculty
Members of the real estate faculty: Dwight Jaffee, Nancy Wallace, John Quigley, and Bob Edelstein
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