the University of texas at austin
How did you get started in real estate and what led you to follow that path?
I came to Austin to get a PHD in finance back in 1990 and was working for the chair of the department, so I ended up being around Real Estate at the time. I wrote my dissertation on compensation models for real estate investment managers. What I was trying to get at is: Would you pay two firms differently if you can control their managers? If you invest in a REIT, you have control over a manager because there is a board, and if he starts messing up, the board can fire him. In private investment firms you don't really have that control; It's really difficult to remove a GP. That dissertation ended up getting published 10 years or so after we wrote it so I thought I was on the right track.
In other words, my career in real estate has been primarily academic and on the consulting side; I never did anything like what you guys are doing. I went to work for a consulting firm after I got my PHD, and since I studied real estate finance, I always ended up working in real estate projects. Eventually that experience led me back to the teaching side of things. I loved working as a consultant, and I love working as a teacher. It's great.
When did you decide to start teaching and why?
I tried not to get in to teaching. My mom is a teacher, my brother is a teacher, my sister is a teacher.. So I tried not to get in to teaching and I went into consulting. But every time I left school I missed the academic environment so once I got done with my PHD and worked for a while, I realized that I could not really come back to school unless it was through teaching. That’s how I ended up teaching at UT.
What are some of the roles you play within UT's business school?
I have spent the last 16 years as a teacher. I teach the real estate capital markets class which covers how real estate entities interact with capital markets and how investors find money. We look into what investors think about, how they invest the money, and what it takes to get through the decision making process. I also run the student investment funds. We have $1 million dollars in the real estate fund, and over the last couple of years we've managed to raise roughly $6 million, with an overall goal of $10 million, in a new PE fund to actively invest in private real estate. It will take about 5 years or so to put that money to work, and we think we will leave the money there for at least 6 years once it's invested. I think our new investment fund can be a great educational asset in terms experiential learning for real estate students. It will be years in the making, but the great thing about a university is that, if it works, it will last forever.
How does Austin’s real estate market cycle differ from others cycle’s regionally and nationally?
In my opinion, real estate people think a bit too much about short term cycles. Real estate is less cyclical than what people make it out to be. Its really more like markets that go up and down. If they were cycles, then we could predict them. Clearly, that's not the case. The other reason I don’t like to get caught up with cycles is that it is very backwards looking. I like to think more of secular trends that are driven by long term demographic patterns and focus on forward looking strategies.
In that sense, I just don’t think Austin is going to be as subject to these short term boom-bust cycles anymore now that we have a larger and more diversified economy. Asset prices will get high and low, but Austin is so perfectly positioned for the knowledge economy that in 20 years it is going to be a much bigger, and richer city. I just think it's one of the safest bets in terms of real estate investments you can make, assuming you can make investments at a reasonable cost basis. Its hard to find cities that are on the cusp of becoming gateway markets. For us to be here now .. You know .. We have to thank our lucky stars.
What market indicators should we be wary of?
Supply and demand are the basics of the real estate business. I am always watching new supply and absorption to continue to check if there is continued demand for all the new supply we see in Austin. Keep in mind that as Austin grows, we are going to get tied more and more to the overall economy. That means we become a city with a little more beta risk. We were somewhat sheltered from extreme booms and busts in the past because of the stability of the university and government labor markets here in town, but, as we become more dependent on the overall economy, we will go up and down with it as well.
Which sub-market of the city do you think will grow the most?
I think East Austin. The city is doing a lot for the area. Whenever they think about something new, they think a lot about pushing things east. Its really nice out there. There are parts of East Austin that to me feel like the nice parts of Uptown New Orleans. They just have that great walk-able human scale, you know? I think it’s the way to go. Plus, The city is more willing to work with people if they go east because that seems to be their preferred direction for development.
If you had $100,000 and just getting your career going, where would you put it to work?
I'd buy rental homes with that money. Real estate is a business where you are going to need to attract capital and partners, so you need to have some sort of track record. I think if you are going to start with your own money it's hard to start with a ground up development, but if you can put some leverage on, and get your foot in the door through small rental properties, you'll get a good understanding of the business. Some of the folks that I know that are senior in this business started that way, and before they knew it they were ready to take the next step.
It’s a great way to learn the asset, learn the market, learn the pricing, and the inner workings of the industry. So much of the success in real estate is in knowing what people are going to want to buy or rent. Plus, people, meaning capital suppliers and potential partners, are impressed if you can get things done. Everyone in our business knows that there are a million ways a deal can go wrong, so getting it done is impressive. It’s a great way to start, and you can get into it without quitting your day job.
Are there any individuals in the investment world that you are constantly observing? Who? Why?
In macro markets I like looking at what Blackstone and John Gray are up to. I find that to be very interesting. In general though, I think people in finance and real estate are careful about information. My personal belief is that the people that are talking are not the ones that really know what is going on, so I try to be careful with what information I take seriously.
Of course I like to listen to the opinions of folks in the business, but I like to watch the underlying numbers, not just rely on opinions. The only business blog I do read religiously is by a guy named Matt Levine on Bloomberg. That covers all industries; not only real estate, and it’s a fund source of information. Also Austin Business Journal. I mean that thing is very comprehensive. I'm always impressed. They do a really nice job covering the real estate market in Austin.
How do you stay up to date with the markets/real estate news?
I'm lucky I get good research as a professor, but in terms of pretty easily available research I also like reading PREA's daily newsletter and the NAREIT newsletter. Between those two newsletters I get links to about 20 articles a day that keep me well informed about what's going on out there.
What are some of your favorite books?
One of my favorite books about real estate is "A Man In Full" by Tom Wolfe. He is just a great author. It’s a novel about the life and times of a real estate professional in Atlanta and how they deal with the difficulties of the business. As with all Tom Wolfe it has some subplots going, but the real estate descriptions are great.
As for investment books, if you haven't read "Money Ball" you have to read it. Its about the fact that there are value indicators that people often overlook; and that it's not in how you trade but rather in thinking about things differently and understanding that the same thing can be seen from a different angle. The main lesson being that you can then use that perspective in a way that allows you to make money.
What is one quote/thought you seek to live by?
"The world rewards action". Lots of people plan and talk, but you have to do! Talk is cheap. In this business we like to see that you can get a deal done.