Representing Auburn University at MIT’s “THE CASE”

the-case-logo-2013

As we entered our final semester at Auburn’s Executive MRED program, program director Michael Robinson suggested that Auburn enter one or two teams into MIT’s “THE CASE” competition.  This prestigious  international real estate competition focuses on real estate acquisition and development financial underwriting at the asset level. The competition mimics the professional circumstances and assignments that students interested in real estate finance, acquisitions and development are likely to encounter after graduation.

This years CASE focussed on the acquisition and redevelopment of the J. Edger Hoover Building, current home of the FBI, located on Pennsylvania Ave in the the heart of Washington DC.  Click here to read the full RFP.   This project proved to be challenging due to the current conditions of the building, existing tenants, and ever changing real estate conditions the the demanding DC area.  To add to the pressure, each group was only given four days to complete the RFP submittal.

After speaking to Professor Robinson about the project, I began to put our team together.  Ultimately the team consisted of Hilton Berry (CCIM finance expert), Hobert Orton (LEED certified and all around sales man), Michael Stewart (architect), and myself.  We all agreed because we would be forced to delegate sections of the project it would be very important that each member could single handily handle their individual task.

Our proposal  was titled Hoover Village.  Click Hoover Village PDF for pdf of our proposal.  The proposal included the purchase and demolition of the entire building.  We then proposed a multi use development that would include retail, dining, office, residential, and hospitality surrounding an open are public space that would he highlighted by a monument remember the former use of the space as home of the FBI.  Although we were not 100% satisfied with the submittal, we hit “send” with six minutes left before the deadline.

We believed the project well represented Auburn University, but we were not expecting notification from MIT informing us that we had been selected into the semi-final round.  Because of that, we were beyond excited when I received the email while in Australia (MRED International Trip) informing us that we needed to arrange hotel and travel plans to represent Auburn University on MIT’s campus in a few weeks!

Soon after we returned from Australia we booked flights and began to plan our trip to Boston to compete.  Once there it did not take long to figure out that we had a big task if we were going to move from the semi-finals to the final rounds.  Sitting at the opening meeting were representatives from the nations top institutions.  Teams from Colombia, Cornell, Dartmouth, George Mason, Harvard, NYU, Rice, Univ. of Chicago, Univ. of Pennsylvania, and MIT were all present.  It was clear the competition was now in full swing!

MIT

Although we were ultimately not chosen to compete for the finals I can say that Auburn’s MRED can hold its head high.  The three teams that were chosen and had the opportunity to present in front of the MIT Global Real Estate Forum the following day were Georgetown, MIT, and Cornell University.  Click here to watch the three final presentations.  These three teams deserved to be there.  Congratulations to Cornell for taking first place in the copetition!

Looking back, I am sure our group will remember this competition for a long time.  Although the projects asked of us within the MRED program were challenging, our class knew that they had resources to their exposure and would be presenting in front of their peers.  This competition was set up completely different.  It was a big project with little resources at our exposure attached to an extremely small timeframe.  Once in Boston it appeared the group did all they could to make the situation as awkward as possible.  However, there is a lot to be said about the way they set up the process.  If students will attempt to put themselves in the shoes of an entrepreneur and MIT in the shoes of venture capitalist or institutional lender it all starts to make perfect since.  Only 12 teams made it to Boston.  There were no bad projects there.  They wanted to know who knew there project backwards and forwards and who ultimately believed in their project the most.  After watching the finals it was clear that Cornell deserved to win the competition.

I would hope that Auburn continues to put together groups for this competition and ultimately win it one year.  I think it would be great to walk off the stage at MIT chanting “SEC, SEC, SEC.”

Posted in Education, MRED, Sustainable Development | Tagged , , , | Leave a comment

Auburn MRED International Field Study: Day Three

Today was one of the most inticipated days of the MRED International trip.  Wine tour day!  The United States is just getting leaving a long winter season so the group was looking forward to getting out of the city for a day to enjoy the vineyards as well as the 95 degree heat.  After breakfast the group met at 8:45 and off we went on the hour long trip to the Yarra Valley.

Our first stop was to visit the Chandon Vineyard and winery.  After a brief tour of the winery’s process, the group was invited to taste their award winning sparkling red wines.  Afterwards, many members of the group decided to taste addition wines that were grown on site.

Chandon

Our second stop on tour was the Fergusson Winery and Restaurant.  This much smaller winery sits on a 40-acre site and is still owned and operated by the Fergusson family.  The group found it very interesting when the young lady pouring samples introduced a wine by saying “Our last wine was the Benjamyn Cabernet named after my brother.  Our next wine is the 1999 Victoria Chardonnay named after yours truly.”  Sure enough, her nametag read Victoria.  Afterwards, the group ate a much-needed lunch to end our Fergusson visit.

Group Photo

Our last stop of the day was the De Bortoli Itilaian based winery on a 600 acre farm that was established in 1928.  In addition to their award winning wine list, Bortoli is internationally known for their selection of cheeses.  The server gave us a detailed history of not only their vineyard but the history of the Yarra Valley and the grape growing process as a whole.  She explained that many investors have lost money in the Yarra Valley in efforts to produce a quality wine. This is due to the length of time that is required before the investment of planting the grapes and pays off with a quality crop.  She stated that most plants begin producing “table wine” grade grapes in 20 years.  It is not until year 50 they produce the most productive yield.  She added “You plant grapes for your children.”  This must be true because all three vineyards that we visited today were in their third and fourth generation.

Posted in Education, Green Building, MRED, Sustainable Development | Tagged , , , , , | Leave a comment

A View From MRED International Field Study: Melbourne Day 1 & 2

As I have discussed in previous post, the Auburn MRED students take a field study at the end of every semester.  While most are locations within the United States, one is an international trip.  Our faculty selected Melbourne Australia and Auckland New Zealand for us this year.  Now that I am here in Melbourne, I thought it would be a good idea to make a few post about what we are doing while here.

As you could imagine, the flight was long. It was 27 hours long for me.  The only positive is that I was able to get 6-7 hours of good sleep between LAX and Melbourne.  Once we arrived there was not much downtime.  The flight landed at 10:30 and we were off to our first meeting by 1:00.  This turned out to be a good idea because it would force us to get on “their time.”

Our first planned event was a quick bus tour of the city followed by a nice lunch at World Bar and Restaurant located on the Yarra River.  While the food was pretty good, the highlight of the meal was simple catching up with friends that I had not seen since our last trip to Auburn in January.

photo-13

Afterwards the bus delivered us back to the Rendezvous Hotel where we agreed to meet back up at 6:00.  That gave me an hour nap.  The hour nap turned into a 13 hour slumber.  I hear the Australian Rules Football game was great….

Because of the 13-hour sleep, I woke up feeling GREAT.  I went for a short pre-dawn run and then to breakfast to meet everyone.  Because cell phones are pretty much useless, we have to agree to meet at places.  (Side note: How did the world work pre-cell phones?)

At 10:00 we all met and chose which way everyone was going.  I chose the “Open Market then the Beach” option.  Great choice!  Our first trip was to the Queen Victoria Market.  One of the worlds largest…..Flea Markets.

Queen Victoria Market

 

Of course there were your typical tourist souvenir items along with cheap clothing, but there was also a produce market and wine market.

 

After the market we decided to take a 20 minute trolly ride to St. Kilda beach in Victoria.  We were able to have a nice lunch and even made it to the beach for a quick dip in the Bay.

photo-14

The beach was very… interesting.  Baeu and I agree “It isn’t Seaside.”

Posted in Education, Uncategorized | Tagged , , | Leave a comment

Most Real Estate Investment Deals Can Be Done with “Back of the Envelope” Approach

As I enter my last semester of Auburn’s Master of Real Estate Development program I wanted to use the blog of Developing a Developer partially as a series of “What I Learned.”  The first post in this series has to do with real estate investment analysis.

As I entered Auburn’s program, one of my goals was to gain a substantial financial analysis platform that I could take with me long after my days at school.  I can say that through a little blood sweat and tears (mostly tears) I feel that I have met that goal.

However, I can also say the following: most of the tools that I gained in this field of study are simply not needed to perform the majority of everyday deals that cross the table of the everyday real estate investor.  While the “Back of the Envelope” method might not be sufficient in analyzing the purchase of a 50,000 sq. ft. office complex, or have you ready to sit for your CCIM (Certified Commercial Investment Member) designation, it will answer most questions about common rental income property.

So, you may ask, “What is this magical “Back of the Envelope” system and how complex is it to understand?”  No, the idea was not named after the great financial guru Dr. Envelope.  It actually is intended to be so simple that an investment can be proved as feasible with a pen, a little bit of paper, and some basic knowledge.  No financial calculator, no complex Excel file, and no expensive real estate software such as ARGUS.  So, lets start by asking two questions:

Q: What is the most important thing to an investor?

A: Cash flow

Q:  How do you determine cash flow?

A:  Income – Expenses = Cash Flow.

Wow, there you have it, what I learned over the past two years!  Ok, ok, lets look at this second question a little more.  Do you have your napkin ready?  If so, lets start at the top.  What numbers do we need to know?

  1. Gross Income (monthly)- This is simply what amount of rent you expect to receive
  2. Monthly Expenses
    1. Mortgage
    2. Taxes
    3. Insurance
    4. Property Management Fee: If you are not going to manage yourself
    5. HOA
    6. Vacancy
    7. Repairs

(Note about expenses:  Do not fudge on vacancy and repairs.  I’m sorry, but you will not be the first landlord ever not to experience any vacancy or repairs on a property.)

3.  Monthly Gross Income – Monthly Expenses = Net Income.  If the number is positive, Congratulations, keep going.  If the number is negative, throw the napkin away and never turn back!

4.  Calculate Returns- We’re about to move from 1st– 2nd grade math to 3rd-4th grade math (Quick, open the calculator app on you phone.)  There are two important numbers that you will need to focus on.

A.  Cap Rate: This simple number tells you if you are buying a good deal.

Net Annual Income / Purchase Price = Cap Rate

(Note about Cap Rate:  This is simply giving you a percentage number.  Simply put, the higher the percentage, the better a deal.  You have to decide how low you will go.  Personally, I think you cannot go below 7% even in the best market.  If the number is 8% or better, you are in the clear.)

B.  Cash-on-cash Return:  This number is the how much you are receiving         on your actual investment.  If you purchased the property with cash, this return will be the same as Cap Rate.

 Net Annual Income / Total Cash Investment = Cash-On-Cash Return

(Note about Cash-on-cash return:  Remember to include the mortgage payment since you are focusing on financing.)

Done!  With these few calculations you should be well on your way to knowing if your next deal is a winner or a looser. Lets take a look at an example.

Back of Envelope

So, good deal or bad deal? You tell me…

Posted in Education, Finance, Landlord, MRED | Tagged , , , , , | Leave a comment

The Landlords Prayer

I came across this while reading the Real Estate Economy Watch.  I thought it was to good not to pass along.  I know I have said this prayer a time or two.

The Landlord Prayer

 

Help me Lord, for as you know

I’ve bought a rental bungalow.

It’s small and plain and seen its day

Yet it has cost my 401 K.

 

Lord, I pray to you in darkness and fear

As I wander the wilderness far and near

Seeking cut-rate contractors who may exist

In the bottom ranks of Angie’s List.

Forgive me oh Lord as I do penance

For all the things I do to my tenants:

Rental hikes and credit snooping

Cheap repairs and leaky roofing.

Bless my renters, give them skills

To patch and paint, to fix all ills.

Lord, keep the plumbing working right

So they never call me in the middle of the night.

Dear Lord I pray please hear my plea

Spare me the throes of bankruptcy.

Keep cash flow high and vacancies low

Or else I’ll end my days in woe.

 

 

Homer Guthrie

Posted in Landlord | Leave a comment

Make The Most Of Your Next Conference

I recently returned from the Urban Land Institute Fall meeting in Denver Colorado.  This conference attracts international land development leaders for three days to discuss topics that are trending in our industry.  Over 5,000 people chose to invest their time and money to attend the event this year.

In reflection, while I believe that the conference was beneficial, it is clear that one could always improve on how they think about a conference.  You cannot afford to simply attend a conference; you must become a conference commander!  Here are six tips that will help you to make the best of your next conference.

Tip #1: The 7 P’s

“Prior Planning Prevents Piss Poor Performance.”  The seven P’s can be used anywhere from military to conference preparation.  Why are you attending?  Hopefully it is more than a few free poorly mixed drinks.  Have a plan before leaving for the conference.

Tip #2: Know your Targets, Gather Information, and Strike Early

Most conference has a list of attendees.  Use these lists to select a few of the most important people that you wish to meet.  Next, gather a little information on these people.  The most important thing to people is, well, themselves.  A little knowledge about these people will go a long way in connecting with them.  Finally, strike early.  Don’t wait to a chance encounter with these people during the conference.  A quick Google search will gather most peoples email address.  Go ahead and attempt to connect with this group.  The purpose of this email is not to make a best friend for life, but simply a chance to schedule a quick coffee during a break the following week.

Tip #3: “Where’s the Beef?” of a Conference

Hint: It’s not in a session of meeting a famous speaker.  Don’t focus your efforts on attending as many lectures as possible in effort to gain as much information as possible.  At best, you will spend three days (and thousands of dollars) and only have a few pages of notes to show for it.  I have gathered that while these lectures can be somewhat insightful, most of the content can be found in recent article in your trade publications.  Instead, use these titles as more of guidance to the interest of people that you will meet.

For example, a “Sustainable Infill Development” session will attract people interested in just that.  Use this to your advantage.  On average, you have 10 minutes before and after to meet with industry leaders that are interested in a given topic.  Additionally, you have a small window to connect with the 2-4 people around you during lecture.

Also, don’t focus on the speaker.  He may be a small infill developer from Seattle Washington when he walks in the room but after a successful lecture, he will be a rock star for the next hour.  Don’t waste your time waiting in a line to meet the speaker only to get a quick handshake, a “thank you”, and a possible business card.  Instead, use this opportunity to connect with people that can be most beneficial to your professional development.

Tip #4: Master the “Deep Bump”

Unless there is ice or fire, no one actually cares about the weather (unless you are attending a meteorologist conference I guess).  Instead, use these short “bump” encounters to make meaningful conversation.  The point of this chat is not to make a new best friend.  Instead it is a short honest conversation with an ultimate goal of reconnecting later.   You have a lifetime to build relationships with people at the conference, but only a few short days to meet them.

One last thing on the “bump.”  Take name and notes.  Try to get a business card from people.  Remember a few key points about the conversation.  Then, when finished, jot a few of these notes on the back of their card.  It will help you remember them much better.  In addition, as stated earlier, the most import thing to people is themselves.  Most people would be incredibly impressed if during a future meeting with someone you happened to make a comment such as “So, it looks like your weight loss plan is still working great.” Or “So, did little Johnny’s soccer team with their game?”

Tip #5 Follow Up or Fail

This is the critical final step.  All the previous steps mean very little if you do not follow up.  Do not be the person that meets a ton of new people only to leave with an impressive stack of business cards that will mean absolutely nothing to you in three months.  Follow up now!  Don’t wait.  Send an email the same day or during a session the following day.  By doing this you will most likely make a lasting impression on those that you meet and could be well on your way to building an important professional relationship.

There are the tips that you can use to make your next conference you best one yet. One last thing I would like to touch on that I am personally most guilty of.  Most conferences, such as this years ULI conference, you will attend with a group.  While it is important for you to continue to build your relationship with team members or fellow students, the conference is simply not for that.  Even if you tend to be an introverted person, try to stretch you wings during these few days. The ultimate goal is to leave the conference with more than heartburn and soar feet.  Good Luck!

What do you think?  Feel free to add your tips!

Posted in MRED | Tagged , , , | Leave a comment

Two Quotes… Two Responses

“All Americans pay for sprawl with increased health and safety risks, worsening air and pollution, urban decline, disappearing farmland and wildlife habitat, affordable housing, and erosion of community.”

-Robert D. Bullard, 2000

“It’s something that we’re skirting around.  We have lost white population in this city, and we have gained black population in this city. By us gaining black population in this city, surely the blacks ought to gain another ward.”

-Kenneth Stokes, 2012

As part of Auburn’s MRED curriculum, we have the opportunity of taking two classes with Dr. Michael Clay (Michael Clay Bio).  A few semesters ago we took Urban Economics and now taking Real Estate Development Law.  Michael presents the information that leaves the class ready to take on the development world.  He is especially knowledgeable in the area of urban centers.

One reason I listen to what Michael has to say so closely is because I have the perfect project in my own backyard, Jackson Mississippi.  Jackson is a perfect representation of the above quote by Robert Bullard.  A visit to a handful of Jackson suburbs and you would agree they are as nice (ready: generic) as any in the country.  Our Target’s look just like the ones in Salt Lake City, Utah and Dallas, Texas!  However, all of this came at the expense of Jackson.  Jackson is only one of many examples of this.  It has many names.  You can call it “sprawl” or “white flight” but the bottom line is that people have left the urban centers for a nice house on a large lot that looks just like everyone else’s.

However, this phenomenon is reversing itself in cities across America.  Jackson is a perfect target of a city that can make this change.  The handful of developers that have gone into downtown district over the past few years have been very successful.  Residential vacancy rates are virtually zero.  People, especially young professionals, want to be at the urban core.

For real estate developers, the statistics should have started a feeding frenzy.  There are dozens of buildings downtown that can be purchased very inexpensively and redeveloped into residential units or mixed use space.  However, this has not exactly been the case.

You may ask, what do all the cities that have experienced radical redevelopment growth have in common.  Among a short list you will always find “City Leadership.”  A municipality must have leadership in place that sets a high priority on positive growth and redevelopment within their city. However, I am not naive enough to not see what determines what a politician says and does not say.  Votes!  However, it does not take a phd to connect the dots.  Development brings buzz. Buzz attracts people.  People move into attractive areas.  People vote within the district they live.

It is for this reason that I am deeply concerned about the second quote from former city council member, now county supervisor Kenneth Stokes in a recent article about district rezoning within Jackson (side note: His wife now has his city council seat.) Read Full Clarion Ledger Article Here.  Reading the local newspaper would have you believe that the leadership is more concerned with the location of a football game between two local colleges, the appropriate waist height men should wear their pants, and the race of the leadership board itself.  While they discuss these “important” issues, their city is missing a huge opportunity that could be a great benefit for generations to come.

Does it make to much since to vote the most qualified people into our leadership regardless of race and ask of them to put the business of the city first?  The two quotes above address some of the same issues.  However, they tell me two completely different things.  The first tells me to look into areas like downtown Jackson for the hidden gems that could produce much higher returns than what can be achieved in the suburbs.  The second suggest that I stay away from Jackson.  They are focused on the wrong things.

What do you think?

Posted in MRED, Urbanism | Tagged , , , , , , | Leave a comment