What is the Real Estate Industry?

So, how many times have you heard the phrase “the real estate industry” tossed around? In reality, the real estate industry is more than buying and selling real estate, renovating or constructing buildings, or renting versus owning property. It encompasses products and services that make a structure possible to be designed or located on a specific site, utilized or occupied for a specific purpose, or purchasable by an individual or entity. Products are not limited to raw materials which are combined to produce a structure. Services are not limited to listing, showing and transferring of property, or financing the acquisition of a property.

By definition, an industry is a particular form or branch of economic or commercial activity. The real estate industry encompasses design (architecture, interior or landscaping), engineering, buying and selling of land and buildings, financing, insuring, property management and construction. Each of these components has subsets or specializations. There are so many different aspects that you are not limited to a single area if one of the components is of interest.

Designing a building includes architecture, specifically interior design or decorating, and engineering. Architecture is the style and method of design and construction of a building. Interior design or decorating is the art and process of setting up a room, including colors, layout and placement of furniture and decorations.  Engineering is the science and design associated with site layout (civil engineering), including site setup such as grading (slope of the land) and the need for utilities to reach the structure, as well as structural integrity (structural engineering) which is the skeleton of the building and its ability to support the load or weight of the structure and its use. Other types of engineering are also critical, such as mechanical, plumbing and electrical, each of which is responsible for systems specific to each type of service required by a building for its intended occupancy and use.

There is also much to learn about the financial side of the process. A purchase transaction is more than simply borrowing money to buy a property. It requires a clear title to the property, so you can legally transfer ownership and rights of a structure or lot to another individual or entity. Sometimes legal agreements are made through contracts so that the continued assume use can transfer with the property to  its next owner.  Financing can include a third party lending money, such as a bank or a private lender, someone with the cash available loan it to another for a predetermined interest rate, or someone who can buy the property outright with cash. More often than not, an independent appraisal is required to determine if the purchase price is at market rate for the value of the property. If not, then the third-party lender, or even private lender, may require additional cash contributions or collateral to the purchase. If a transaction is made possible by any means other than buying with the proposed owner’s cash, then insurance is required to guarantee that the value of the structure is maintained in the event of damage.

For each of the previously defined components of the real estate industry, the need for entitlements exists. This includes approvals for use of the land for the intended purpose, which may require zoning variance approvals; design approvals of the proposed development, which may require design review approval or urban design approval, depending on the jurisdiction; approvals for construction or installation of utilities in the public right of way, which may require a public works agreement approval or developer’s agreement approval; and most definitely building permits for construction if that is part of the process.

Architects, civil engineers, financing institutions, developers, builders, all need to have their part of the project reviewed and approved at some point during the transaction or development stage. These entitlement stages can be managed by each participant, or it can be taken care of by an individual known as an expeditor. This role requires the ability to logistically manage the flow of information as well to understand the high priority of providing and disseminating information in a way that keeps the project’s review moving forward, while responses are being provided or changes being incorporated.

As generic as your interest may currently be in real estate, you will find that there are multiple areas of opportunity for you to learn about and eventually pursue.  Starting in one area does not limit you in terms of your professional development. In fact, the pursuit of multiple areas of knowledge and experience will only strengthen your core understanding, and make you a stronger participant in this vital industry.

Lisa Junker is an alumna, advisory board member of UB’s Real Estate program and Vice President, Project Coordination at Colbert Matz Rosenfelt, Inc.

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“EMC”: The Entrepreneur, The Manager and The Capitalist

No endeavor or enterprise can reach its full potential if it does not take advantage of what I call “EMC”: the entrepreneur/manager/capitalist approach to progress. Individuals and organizations can benefit equally – and avoid insurmountable challenges that may come from within or from the outside – by considering the answers to the questions that EMC raises for you:

• the “entrepreneur”: What is it that we do? Why do we do it? Whom does it benefit?
• the “manager”: How do we lead, direct and support the people, systems and resources critical to the mission?
• the “capitalist”: How do we make a profit? How do we maximize our value to stakeholders and investors?

Very rarely does an individual possess the natural ability and intuitiveness to serve in all three of these roles over the course of his or her lifetime. Some extraordinary few, like Bill Gates, Warren Buffett or Steve Jobs, manage to do more than one at a time. Accordingly, as we grow and evolve, we can learn who and what we are within the EMC rubric, and act accordingly. We learn what we can and can’t be responsible for, where we need help and collaboration, how we can gain support to achieve our goals. Remember that our individualized EMC is a target, a goal – and it’s often a team effort. No matter what we’re doing, we must learn to trust others – and model behavior that allows others to trust in us as well.

A Personal Example:

When I was in college and studying business, I believed that I could get a job that would pay me to develop an idea and provide me with the tools and resources I needed to complete the task. My perspective was pretty straightforward: “I am a good worker, smart, and certain that whatever you, as my employer, needed me to do, I could deliver. I, along with about 200,000 other students with the same perspective, were trying to live up to that standard. At that point in my life, I was the “E” in the EMC approach: completely entrepreneurial, independent, a self-starter.

I thought I could go it alone—organize my life around school, work and a social life, and achieve my goals, no problem. I was wrong. Instead, over time I recognized that I needed help to stay focused, forge my path, and successfully graduate in order to get the job I wanted. It was a university adviser who supported me so I could develop a better schedule, and strike out on a more efficient and focused path to reach my goal. Furthermore, her suggestions led me to discover study groups and resources previously unknown to me. She was the “M,” the manager, in the EMC approach.

My “M” also helped me overcome other obstacles along the way, such as when she introduced me to a grant program and additional resources that were willing to invest in my education. They were willing to invest in me because they saw that I could be a productive member of the community, and eventually pay back what I had borrowed. They served as the “C,” the all-important capitalists, in my drive to be successful.

The EMC approach to our endeavors in life is universal. Any idea requires conception, management, execution and funding—often more than once. Your education, personal relationships, job, a new business, or a social program: all of these require the same three critical elements, if your greatest potential is to be realized. Furthermore, the most wonderful characteristic of EMC optics is that while the elements are always the same, their application and development are dynamic. The entrepreneur, the manager, and the capitalist all live within each of us, and grows and evolves as we do.

Athan Sunderland is an advisory board member of UB’s Real Estate program and executive vice president for Pinkard Properties. Over the past 15 years, he has represented the investment interests of several asset classes spanning local office buildings to multi-billion dollar REITs. Athan’s commitment to a customer-centric approach has been recognized with both peer- and industry-sponsored awards.

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The Critical Path

History doesn’t repeat itself, but it does rhyme. – Mark Twain

Construction and real estate. Two disciplines that have been mutually dependent on each other for centuries.  In spite of this, the construction and real estate professions mutually tolerate each other through the development process from design to finished product.  This traditional development process, as it has evolved, has been described as the only industry where different companies willingly go into business with the sole purpose of arguing with each other for years to deliver a product that the customer actually wants, at a price it can afford.

It doesn’t matter if you buy and sell, own and maintain, or develop, real estate needs construction services to survive and vice-versa.  For new development, it is a fact that 70-75 percent of any project’s total cost is construction (material, labor, and management).

In the aftermath of the great recession, developers and owners are looking for ways to cut costs without diminishing quality.  Likewise, contractors are taking more risks involved with design, and financing while working with other disciplines to mitigate cost and expedite project deliveries.

Like all previous boom and bust economic cycles, history shows us that in recovery periods, industry adapts through innovation.  Recessionary periods force practitioners to stop and look at how they are doing things and reevaluate their business practices.  The innovation and technological revolution is now unfolding in the construction industry. Technologies such as Building Information Modeling (BIM/3D modeling), prefab and modular are fundamentally changing the way the construction industry conducts business.  The Great Recession was the catalyst for that change. When construction development came to a screeching halt, it became an “adapt or die” environment.  These technologies allow construction companies to streamline processes, find cost efficiencies, identify problems much earlier and deliver their products better, cheaper, faster, and stronger.  Both construction and real estate will continue to be effected by this technological revolution, causing a greater need to understand the other’s practices.

The Maryland Center for Construction Education and Innovation (MCCEI),  just completed a ground breaking construction industry report titled, “The Critical Path: Positioning Maryland as an Innovation Leader in the Global Construction Industry.” We interviewed 126 built environment professionals including developers, general contractors, and property managers and asked their opinions on the future of the construction industry from a technology and business planning standpoint.  From these interviews, MCCEI identified emerging trends in the construction industry, and many of them reflect the dependence between construction and real estate.

When we asked participants what they thought the biggest change to the construction industry would be through 2020, the top responses were:

1)      Integration and adaptation of BIM and new construction technologies.

2)      A different business approach beyond design-bid-build

3)      A rapidly expanding need for a highly educated workforce.

Let’s examine these a little closer.

  • Technological advances are reducing development costs, shortening schedules, and improving operational efficiencies.  Buildings are becoming dynamic, highly energy efficient, and more environmentally friendly.
  • For decades, the traditional development approach has been design-bid-build.  We are now seeing more in the way of alternative delivery methods such as public private partnerships.  The disciplines between design, development, and construction are blending versus the separation that is inherent with design-bid-build. (AKA: the triangle of argument.)
  • The construction workforce is rapidly aging and will be affected by massive waves of retirements in the coming years.  Coupled with that, the Great Recession swept out many of the younger players and deterred many others from pursuing careers in this business. Therefore, there is very little in the workforce pipeline.

What does this mean: Opportunity

From our findings in The Critical Path, the business of construction is going to need a highly educated workforce that is tech savvy, and understands all aspects of the built environment.

The state of Maryland is very fortunate to have top ranked educational facilities. UB is now offering an articulation between many of Maryland’s community college construction management programs and the UB REED bachelor’s degree program.  Construction managers are in high demand, and the articulations into the REED program will offer the built environment the very professionals that it is going to need in the future; professionals that understand both sides of the business.

Development, acquisition/disposition, portfolio management, construction, renovation and maintenance, are all inter-related and mutually dependent professions.  The technical revolution is here in an industry that has avoided change until it had to.  This same revolution has occurred in other previously labor intensive sectors like manufacturing, ship building, textiles and agriculture.  Now it is Construction’s turn.

As a student or prospective student in the UB REED program, you have an opportunity to participate in a unique learning experience in Maryland.  There are very few undergraduate real estate programs throughout the country and even less that combine construction with real estate.  Contrary to that, as technology evolves, traditional industry division lines blur and business changes, REED graduates have the potential to be highly desired.   The arc of history is now writing its rhyme with construction and real estate and the question becomes “will you be ready for it.”

For more information about The Critical Path, please visit our website, www.mccei.org

Robert M. Aydukovic is an advisory board member of UB’s Real Estate program and president of the Maryland Center for Construction Education and Innovation (MCCEI). MCCEI is an industry-driven nonprofit organization based at Towson University that serves as a resource for construction related education and training, and connects the industry to latest trends and transformative technologies.

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Recap: Lessons From Legends, Tom Bozzuto

From the very beginning, it was clear that Lessons from the Legends was a different type of event. Speeches, lectures and panel discussions that provide in-depth information on opportunity analysis, alternative financing structures, etc. are important, but are also a dime a dozen. Opportunities to engage in casual discussion and interaction and understand thought processes and experiences with a thought leader are very rare. If the series continues in this fashion, I suspect that the events will quickly be viewed as “must attend” for anyone in the local real estate industry. If you weren’t there, I encourage you to watch the video below and make a point to attend the next installment planned for the spring.

I considered resisting when I “was volunteered” to recap the Tom Bozzuto event, bit thought there was real value in what he shared with the audience. I’ve spent my life engaged in the real estate industry and  I have no professional relationship with the Bozzuto family.  I have known Toby Bozzuto personally for longer than either of us would probably like to admit. He is a childhood friend of both my brother and my wife. As adults, we have spent numerous social occasions together and live roughly down the street from each other. I even coach his niece’s soccer team.

I see Toby as a friend, a good guy and someone who knows where many of my skeletons are buried. By extension, I’ve met and spoken with Tom on a number of occasions, but always in his role as a father and grandfather, at preschool holiday pageants or family pumpkin picking outings.

I was fascinated by the idea of seeing the differences between “Tom and Toby,” and the legends of real estate who were on the stage. I wondered if there would be some distinction or difference between the men I know personally and their professional alter egos. I was heartened to see that the same engaging, intelligent, insightful men I know personally took the stage last. I was comforted to know the values I am familiar with were a consistent theme of the event.

After the event, I reflected for a couple of days on the conversation. More than any one comment or question I took away several key overarching themes- vision, values and perseverance.

Specifically, I think every aspiring real estate professional should look out for the following points in the video ;

  • Every student there should have taken notes on Tom’s discussion of taking jobs with lesser pay but greater opportunity. His nod to vision and perseverance is hopefully well taken by many from a generation enshrined in the idea of instant gratification. While money is obviously important, it was never Tom’s sole objective. The path to success is neither short nor direct. Be prepared. – Tom returned to the theme of values several times. I was fascinated about the idea that it is better to create a broad framework of values for your organization than to create volumes of rules that no one will read.
  • Tom’s humility in openly addressing thoughts and projects that were less successful was impressive. We all know that mistakes are valuable lessons in themselves. Admitting them privately is difficult enough. Imagine being on stage in front of 300 industry peers and pointing them out.
  • The one specific piece of information that I found most informative was the last question regarding what Tom would do now if he was just entering the business. It was a thoughtful and honest perspective. I hope students who viewed this portion of the video understand how rare it is to get such a detailed answer and overview of how a legend thinks.
  • Lastly, Toby obviously wrecked the car and six weeks was lenient (you’ll have to watch the video to find that). As I said above, if you were not in attendance, you missed a unique event. The video should be mandatory watching for anyone who is involved or is looking to be involved in the real estate industry.

Next Lessons From Legends event: April 4th featuring Edward St. John, chairman of St. John Properties. Details will be available soon.

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Where Do We Grow from Here, and Who Will Lead the Way?

Over the past several years there has been much debate about where we should grow in Maryland.  Although we have been discussing this issue since Gov. William Donald Schaefer created the Economic Growth, Resource Protection, and Planning Commission in 1992 (yes, 20 years ago), the conversation became much more interesting when the Maryland Department of Planning published the first draft of PlanMaryland in 2011. I have participated in many of these discussions throughout my 26-year career in the real estate consulting business, and I hope to continue to participate for years to come. But the real burden of addressing this important question will fall on the young professionals who are entering the workforce over the next few years. These future leaders would do well to understand the past and be prepared to address the issues inherent in encouraging growth in order to succeed.

In my opinion, there are three separate, but interrelated aspects of our past growth patterns that must be part of the conversation about future growth patterns, and how to manage them.  They are market demand, regulatory requirements, and the politics of land use. Each of these topics deserves a more complete explanation than is available here, but a short description may be helpful.

Market demand includes not only what people want—a bigger house, a yard for the kids, shopping and other amenities that are nearby, offices close to home, and possibly a stronger sense of place—but also what people don’t want. That “no thanks” list is no surprise—it includes bad schools, high taxes, crime, longer commutes, and isolation from neighbors. But the young real estate professional needs to remember that on both sides of the ledger, the market is in charge: builders and developers (including all land uses, i.e., office/employment, retail, and residential) build to meet that market, they do not create it.

In addition market demands, regulatory requirements dramatically affect how we grow. Like any business, development will seek the path of least resistance between what they can provide and where.  The most specific example of this element is Adequate Public Facilities Ordinances (APFO’s).  If it is more cost effective (considering time and money) to build in a greenfield because it is more cost effective to make schools, roads, sewer, and water improvements, then that is where development will occur.

A mentor once told me that land use is politics. County and city council members are actively involved in land use decisions–from comprehensive rezoning to reviewing individual site plan applications. Political cycles occur frequently; pro-growth or anti-growth councils can come and go. Our politicians have many demands on their shoulders, including listening to developers, environmental groups, and community groups on where development should occur, and what it should be.

Over and over again, I have seen these three elements collide, sometimes violently. They seldom work together. We cannot expect that a regulatory change will compel an evolution in market demands or political realities. And it’s not realistic to believe that a political initiative will change the market or result in regulatory changes. The three are interwoven.

Our future leaders in the development industry (public and private sector, developers, builders, planners, politicians, community activists, environmental advocates, and so on) must  collaborate to make sure that the elements work together effectively. This is not meant to pass the buck; it is a realization that those who are entering the profession in the next five years have an opportunity to change the dynamic. These professionals are part of a different market. They have not been engaged in the dialogue (and sometimes the battle) that has occurred over the last three decades. They can approach the discussion with a relatively unbiased perspective.

Our educational institutions have both the opportunity and responsibility to foster this discussion. I cannot think of a better place to begin the dialogue than in an academic setting where a variety of viewpoints can be aired without alienating a specific voice. The questions about what we are doing, what has worked and what has not, and how things can change should be considered, with the goal of crafting ideas for change. It’s a challenge, but well worth the effort. I am confident that our institutions and future leaders will “move the needle” significantly.

Sean Davis, RLA, is a principal with Morris & Ritchie Associates, Inc., a multi-disciplinary architecture, engineering and planning firm with offices throughout the mid-Atlantic.

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Diversity, Innovation and Courage

Look up and not down; look forward and not back; look out and not in; and lend a hand.
-E. E. Hale

Hello everyone! I’m Monica Robertson, MSB Real Estate board member and architect.  Over my sixteen-year career I’ve seen many highs and lows in a profession that is always evolving.  The real estate community in general has experienced one of the most trying economic periods of our generation.  As an architect, I had the unfortunate position of feeling the effects of the credit crunch early.  Given that my area of practice focuses on multi-family housing design, it didn’t take long to see developers put their projects on hold, mostly to lack of debt and equity financing sources.  In a typical project, the design process for an apartment building takes around nine months and anywhere from twelve to twenty-four months to complete construction.  I remember thinking to myself that the contractors were going to be in for a big surprise once they finished projects that were already in the pipeline and that I’d need to do some planning with my colleagues for ways to brace for the downturn.  So, I wrote three words down in my notebook: diversity, innovation and courage.

The first word, diversity, reflects my thoughts on good business practice.  In general, it correlates to the old adage of not putting all of your eggs in one basket. With anything in your life I feel this saying holds true.  Be diverse, learn and do many different things.  While my firm has a significant practice designing housing, we also design places to heal, learn and play – hospitals, schools, arenas and many other building types in between. This diversity was like an airbag for us.  As a firm we were able to absorb the crash of the housing market better than some of our competitors.

The second word, innovation, came to mind because I knew we were going to need some new tools in our toolbox to set ourselves apart from our competition.  For the limited work that was in the market, there was downward pressure on our fees and upward expectation of better and more efficient designs.  Given that less money was available, we had to design smaller and smarter, capitalizing on well-organized floor plans.  The developers were rewriting their proformas based on new unit mixes, trending toward more studio and one-bedroom units, and increased density.  All signs were pointing to urban, transit-oriented sites with efficient unit plans and amazing resident amenities.  Looking back, I can truly say that some of our best multifamily designs were born in this recession.

The third word, courage, reflected my fear at that time of not knowing what was to lie ahead and knowing that I would need to find courage in times of challenge.  There are many things in life that will require you to be courageous.  If you do not have it, find it.  How? Empower yourself with knowledge and self-confidence.  UB is full of learning and networking opportunities. Ask yourself what interests you most in real estate, find purpose and direction. Absorb as much as you can while you are in school.  As your knowledge base increases, so will your self-confidence.  This will give you courage to move forward and not look back.

Today, my firm is busier than ever.  In nine months, I know that the contractors will be smiling again.  While we may not be out of the woods, the world is looking great out my window. Embrace diversity, be innovative, have courage and you will succeed.

Monica A. Robertson is AIA,  LEED, and  AP certified and a Principal and Vice President, Hord Coplan Macht, Inc. She is also a member of the UB Real Estate Advisory Board.

 

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Knowledge Is A Lot Like a Blanket, It Is Best Shared

“Only the foolish learn from experience—the wise learn from the experience of others.” –Rolf Hochhuth, author and playwright

Welcome to the inaugural contribution to the MSB Real Estate blog, a product of the Real Estate and Economic Development program in the University of Baltimore’s Merrick School of Business. I’m Daniel Thomas, chair of the Merrick School of Business Real Estate Advisory Board and partner in training at St. John Properties—and I love real estate.

If I understand Hochhuth’s quote, the key to wisdom is to pay attention to the experiences of others. At UB we are proud to provide an accessible forum for sharing experiences, in this particular case experiences concerning real estate. All of us involved in guiding the real estate program at UB hope that this blog will be thought of as a valuable resource for asking questions, raising concerns, and resolving issues that impact the world of real estate  in the Baltimore market. We hope it will spark discussion, and maybe prompt some of you to do even more. Real estate is an amazing field in which you can really make a mark. I like to say that it gets into your head and your heart.

From my early years I had a feeling that real estate might be for me.  I knew about the business of construction, listened to talks about mortgages, saw architecture I liked (and much more that I didn’t). I read every book I could and never missed an opportunity to talk with someone in the industry. But I had difficulty finding an academic program that fully aligned with my passion for my future.

Fortunately for people across this region, it’s easy to start a formal education in real estate, thanks to UB. For some of you, blending your classroom time with an internship or job at a development firm may prove to be a key to your success. (That’s how I entered the profession—alongside earning both an undergraduate and graduate degree in real estate.) Some of you may be out in the sales force and are looking to start your own firm or are forging a pathway to a partnership. Some of you might be focused on the economic development side of the equation. Still others may be interested in the service aspect, that part of the job that involves improving neighborhoods, preserving a community’s strengths, and so on.

Regardless of where you’re coming from, getting an education in real estate will change you. I’m a self-confessed fanatic about this field, and I give all the credit for my success to the great teaching I received along the way.

Real estate is something you can love the same way I do—I like to say that I don’t believe I have worked a day in my life. I hope that I can add some value to your experience as a fellow explorer in this endeavor. We all must remember that our industry is changing. It is complex, and it requires new skills and new knowledge on very nearly a daily basis. Without this foundation, your potential in real estate is limited.

On that note, let me leave you with a challenge:  If you’re considering real estate as your profession, think of it as just that: Not just a job, but a profession. Give it that due respect. It will give back to you, I promise.

When it comes to learning, be a sponge.  Absorb every particle of knowledge you’re offered. Even if you’re already working in the field, keep on learning. You can rely on this blog, and the University of Baltimore, as a source of academic excellence and practical knowledge.

Check back often. We’ll keep posting, and together we’ll keep learning. Because knowledge is a lot like a blanket: it is best when it’s shared.

Have a great day and a productive week.

Daniel Thomas is a Partner in Training at St. John Properties and Chairman of the Real Estate Advisory Board at University of Baltimore.

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