After a crisis period it would probably rather forget, the scapegoat for the recession is purring once more. Global real estate attracted more than $700 billion in investment in 2015, according to US property advisors JLL. And the world’s elite business schools are sharing a slice of the profits.
“For real estate, it’s boom time,” says Dustin Jones, director of the Baker Program in Real Estate at Cornell University. Applications are up by 30% year-over-year. “There’s been a tremendous surge,” he says. “And there is huge demand for taking real estate courses from general MBA students.”
What is driving the frothy market?
As investment yields and asset values in commercial property surge, global real estate is offering up lucrative MBA careers. From real estate equity outfits at private equity firms Blackrock and KKR to investment funds at Goldman Sachs and Morgan Stanley, and developers such as Bechtel, MBA job prospects look juicy.
“There is a strong market for MBAs that specialize in real estate. There is overwhelming demand,” says Gilles Duranton, chair of the real estate department at Wharton School at University of Pennsylvania.
Two-thirds of Wharton’s 861 MBA students are enrolled in real estate finance, he says, while 10%-15% take the specialist real estate track. And one course, property development, is so oversubscribed there are 40 people on the waiting list, Gilles says.
“The only problem we have is filling our classes with teachers,” the Frenchman adds.
With record low interest rates, investors have piled into property, making it a mainstream asset class. A varied range of institutional investors are seeing the appeal, too — spurring a widening of real estate jobs for investment professionals.
“Pension funds, endowments, and sovereign wealth funds are all increasing their portfolio allocations for real estate. Anyone intending to make a career in finance should know something about commercial [property],” says Lynne Sagalyn, director of the MBA Real Estate Program at Columbia Business School, whose course enrolments have increased.
Kevin Riordan, a director at the Center for Real Estate at Rutgers Business School, says: “We also cannot the underestimate the attractiveness the sector has gained as debt through CMBS [commercial mortgage-backed securities] and equity through REITS [real estate investment trusts] have taken hold.”
Andrea Heuson, professor of finance at University of Miami School of Business, puts the MBA trend down to the number of students who have shunned banking since the Great Recession.
She says: “New global capital standards forced some of the big US banks to cut headcount. The glamor aspect faded. And as the prospects dimmed, people looked at other parts of finance. Real estate became one of them.”
All the while, property has soared in popularity at Miami, leading to an expansion of its real estate offering: courses on real estate investment, real estate finance, real estate law, and a project management and modelling class.
Stijn Van Nieuwerburgh, director of NYU Stern’s Center for Real Estate Finance Research, says property firms and traditional financial employers share similarities.
But, “The tangibility of real estate assets differentiates it from finance in a way that many students find very attractive”.
Jason Henderson, a Baker student at Cornell, who worked in property development consulting, says: “It’s a very rewarding career, not just financially, but you get to see what you do on paper become a reality that affects people’s daily lives.”
Yet with the industry enjoying a plentiful past two years, some investors, including CBRE, the world’s largest real estate investment manager, are questioning whether property has peaked. And 2016 began with bond and equity markets reeling.
Is a bubble about to burst?
Matthew Cypher, director of the Steers Center for Global Real Estate at Georgetown McDonough School of Business, admits the sector is cyclical. “The market has performed well post-crisis,” he says. Yet another downturn could leave schools and their students exposed.
For now, however, they will keep building: Georgetown pumped $10 million into the Steers Center last year.
“MBAs are by nature pretty good at taking market signals,” says Greg Hallman, senior finance professor at Texas’ McCombs School of Business. At McCombs, which offers a real estate MBA concentration, Greg says demand from both students and employers is increasing.
“This interest on the part of business schools is going hand in hand with real estate moving into an institutional asset class,” he says. “For years people saw it as an alternative investment to stocks and bonds. But the institutional investors are starting to see it as an important part of their portfolios.”