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Real Estate Now Recognized As Real Asset

“The biggest question in everyone’s mind today is: Is this change in real estate cyclical — are we hot? Or is it secular?” said John Nikolich, ’92,  at a panel discussion of real estate capital markets at Management Conference on May 18 at Gleacher Center. “We believe it is secular. We finally have a seat at the table. Stocks, cash, bonds, real estate—they’re there, and that won’t change”

This evolution from alternative sector to mainstream asset has occurred slowly, the Flint Creek Partners founder and managing director said. “If you look historically, real estate played more of a cameo role. If it was a tax advantage, or if it was hot, it was in a portfolio, and at the first bad sign it got banished.”

Today, the success of the industry can no longer be seen as a mere blip, said Edward Ryder, ’92, managing director of Transwestern Investment Company, LLC. “If you look at almost any period over three, five, ten, even twenty years, you’ll find that real estate—on the equity side in particular—will have outperformed almost every other asset class. So there is credibility. There is a track record now.”

There is also a great deal of specialization and detailed analysis now available in the industry, Ryder said. “The domestic market is being mined like you can’t believe. It used to be four food groups: office, retail, industrial, multi-family. And that was it. After that it was a desert. No one really thought about the other sectors.” Now, he said, there are specialists and sub-specialists in more sectors than he could name. “Along the way people started looking for other places, other corners of the market, to look for returns.”

That additional information flow and transparency in the industry has “dramatically improved” the comfort level with real estate, added Kieran Quinn, ’73, chairman and CEO of Column Financial. In fact, real estate investment in this country is so mainstream that Quinn’s firm considers the United States to be “completely over-shopped and over-marketed.”

Panel moderator Michael Herzberg, ’80, co-chairman and co-CEO of FPL Advisory Group, said, “One of the great trends that we are now seeing is an evolution into the internationalization of real estate across the world.” Quinn agreed, saying the international market is “clearly where we’re all going, equity and debt.” He was enthusiastic about the opportunities in India or Eastern Europe, but more wary of investing in China or Chile.

Lynne Sagalyn, professor of real estate development and planning at the Wharton School of the University of Pennsylvania, said real estate is “a major asset class in the wealth portfolio,” she said. “There is a career path for real estate professionals who are going into development, which is the traditional path. More importantly, the bigger career path is for investment management. There’s also a career path that requires you to know real estate, and that is CFO. It’s part of the vocabulary in finance.”

Panelists agreed real estate used to be a job learned through experience, but Quinn suggested that in the last 10 years it has become more essential to have “the MBA skills to be in this business.” Ryder said, “I can’t think of another industry where there is more intersection, every single day, in the five or six core functions that you pick up in business school.”

—Jenn Q. Goddu