This week I have the distinct privilege of addressing the incoming class of BBA Scholars at SMU’s Cox School of Business. These are the brightness of the bright; the top of their classes from all over the world. My task is to introduce them to the Real Estate Finance program at Cox. I view my goal as being fairly simple: Recruit these top students into a profession that I have enjoyed for almost 40 years since I graduated from SMU. I tell them that the real estate program at SMU was one of the first at the university level in the United States.
What I have learned from my experiences with young students is that the “real estate” profession is a rather vague concept. When someone says “I’m in real estate”, usually people assume that he or she sells houses for a living. Nothing could be farther from reality and the complexity—or depth—of “real estate” as a profession.
So, to illustrate why I think real estate is a cool profession to consider, and why I promote it, I use the development of an office building as an example of what being in real estate can really encompass.
Here’s the way my 10-step example works:
Step 1. Long before major highways are built, a real estate speculator decides to invest in a tract of vacant land, usually farm land, somewhere in the path of the growth of the city.
Step 2. A real estate broker finds the speculator a suitable tract of vacant land to buy. The investor waits.
Step 3. The city grows and before long streets are built, homes get occupied and the need arises for employment centers—office buildings.
Step 4. A creative, risk-taking office developer decides it is time to construct an office building.
Step 5. A real estate broker sells the developer the tract: a commission is paid to the broker and the speculative investor smiles.
Step 6. The developer goes on a hiring spree: real estate attorney, architects, interior designers, contractors, appraisers, and, financial brokers.
Step 7. The developer also hires a project leasing firm: they are responsible for filling the building with tenants. These tenants are most likely represented by their own broker (tenant reps).
Step 8. The building gets filled up with tenants—all represented on both sides by real estate brokers. The developer hires an experienced real estate management company to oversee operation of the building.
Step 9. Ultimate value has been created when this well-located, well-designed, well -financed and well-tenanted office building is completed. The developer hires a real estate broker to market and sell the building.
Step 10. A real estate investment firm (could be private, public, a pension fund, either domestic or international), represented by a real estate broker, negotiates and buys the building—after they have hired more attorneys, engineers, appraisers, and financial brokers for its due diligence. The developer smiles.
Look at all the real estate professionals that are needed as this real estate asset comes to life. There are multiple levels of risk—and reward—that can be assumed at any point of this process. And, for the most part, the economic system works well: the more risk you take, the more reward (read: money) you can make. The whole process is intellectual, fast-paced, ever-changing, creative, and ultimately extremely rewarding for those professionals who can meet these challenges.
So I ask you, how cool is that?
Chuck Dannis is co-founder of Crosson Dannis Inc., which provides real estate appraisal and consultation services for many of the nation’s largest real estate lenders and owners. Contact him at firstname.lastname@example.org.