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.

“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.

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.