Mastering the metropolis through research and thought leadership.

Zell/Lurie Real Estate Center 2019 Spring Members’ Meeting
Wednesday, May 1, 2019 – Thursday, May 2, 2019


The Zell/Lurie 2019 Spring Members’ Meeting opened on Wednesday, May 1, with a dinner and awards ceremony in the Grand Ballroom of Philadelphia’s Rittenhouse Hotel. The evening included a conversation with Elizabeth Economy, C.V. Starr Senior Fellow and Director for Asia Studies, Council on Foreign Relations; Distinguished Visiting Fellow, Stanford University’s Hoover Institution.

Geoffrey Garrett, Dean, Reliance Professor of Management and Private Enterprise, Professor of Management at the Wharton School, and Professor of Political Science at the University of Pennsylvania, facilitated the conversation on Xi Jinping’s Third Revolution and the Future of U.S.-China Relations.


After a networking breakfast the next morning, participants were welcomed by Joe Gyourko, Nancy A. Nasher and David J. Haemisegger Director, Zell/Lurie Real Estate Center at the Wharton School, and Matthew J. Lustig, Head of Investment Banking, North America; Head of Real Estate and Lodging, Lazard, and Chair of the Center’s Advisory Board.

Both Gyourko and Lustig reminded the audience that the meeting is an excellent opportunity to network, to mentor and find mentors and potential employers/employees, and to learn about the state of the industry.

The Center’s mission is to provide thought leadership to the real estate community by supporting cutting edge research for current and future business leaders and policy makers; facilitating a partnership between industry professionals and Wharton faculty and students; and providing for innovative inquiries and excellence in education; making research accessible and providing a forum for the real estate community to discuss critical issues.


The day’s first panel, Wharton Faculty on the Markets: Equities, Oil and Real Estate, was moderated by Maisy Wong, James T. Riady Associate Professor of Real Estate, Assistant Director, Grayken Program in International Real Estate at the Zell/Lurie Real Estate Center.

Panelists were Jeremy Siegel, Russell E. Palmer Professor of Finance, the Wharton School; Erik Gilje, Assistant Professor of Finance, the Wharton School; and Joe Gyourko, Martin Bucksbaum Professor of Real Estate, Finance and Business Economics and Public Policy at Wharton.

The conversation began with Wong asking the panelists about the current phase of the business cycle. Although we are about to set a record for the longest expansion in United States’ history—the decade between 1990 and 2000 is the previous longest—there doesn’t necessarily need to be an end in sight, according to Jeremy Siegel.

“Expansions don’t naturally die. Australia has been in one for 20 years,” he said. His concern centers around the low, 3.8 percent, unemployment rate. “Demand is creating 200,000 jobs per month, but supply is only half of that. If the unemployment rate keeps going down and the Fed has to tighten, that could end the cycle.”

Gyourko agreed that the ninth inning is not yet in sight. “I don’t see massive over-supply in real estate except in certain markets, and I think it would take a massive negative shock [to end it].” He added that he believes we are “slow and steady” for at least a year.

The energy sector may be a different story, according to Gilje. “It’s interesting. There are geopolitical tensions, reduced exports, rising prices and supply is relatively flat with a leveling off of production. It’s a red flag—the ability of U.S. crude oil supply market to satisfy global demand. There has been price volatility in the past three to four years, and now we’re in a steady tightening and upward price cycle.” Despite increasing prices over the past decade, U.S. drilling is declining, which is linked to firms’ inability to access capital, he added.

“We’re hitting the ceiling of oil production,” he said. “OPEC is being more disciplined about its own production and the very small changes in the supply/demand of crude oil production can lead to large pricing changes.”

“Many think we’re in a slow and steady growth, but we always worry,” said Wong. “The Fed has announced it’s going to hold rates steady. What are your thoughts?”

Siegel expressed concern about wage pressures and said, “If labor participation rate sinks or levels off and we don’t have enough people to satisfy the labor demand, we could see wage spikes,” but he predicted no spike over the next year. Gyourko said that skyrocketing energy costs could put the U.S. into a downturn; with a low growth rate, a huge shock isn’t needed. “Enough of an energy shock could matter and the Fed might react to a big spike in wage growth.”

Discussion continued around the variables of energy demands/wage demands/population growth and unemployment numbers. Wong then guided the conversation to U.S./China relations where they agreed that the stock market will react negatively if the U.S. pressures the Chinese too drastically with tariffs.

In general, looking forward, the panelists agreed that each sector they represent—equity, real estate and energy—understands the importance of technology and technological changes. Gyourko also commented on the risks posed by poor municipal management in various cities around the country: when taxes go up in these cities (he used Chicago as an example), people can move. “Labor is mobile, but buildings and land are not,” he said. “This (poor management, rising taxes) is impacting the real estate sector.”

Wong summarized the risks facing these sectors: political risks, rising tariffs, falling unemployment rates, political surprises, technological changes and challenges, and municipal mismanagement.


Panel number two, Real Estate Tech—What’s Really Happening and What is Coming? was moderated by Ron Kravit, Former Co-Head of North American Real Estate, Managing Member, Cerberus Real Estate Capital Management, LLC; Senior Managing Director, Cerberus Capital Management; Vice Chair, Advisory Board, Zell/Lurie Real Estate Center at the Wharton School.

The panelists were Zach Aarons, Co-Founder and Partner, MetaProp NYC; Marcela Sapone, Co-Founder and CEO, Hello Alfred; and Chris Kelly, Co-Founder and Vice Chairman of Convene.

“Technology and change is so important, and many have engaged with it in the past year,” Ron Kravit said in opening the discussion. “Real estate disruption is prominent and Wharton’s curriculum has changed to adapt.” The panel was asked to talk about the WeWork business model.

Chris Kelly said Convene not only provides space in which people can work, but helps companies resolve problems while providing that space. “We take the principles of a shared economy and increase the quality and flexibility, seeing real estate as the world’s largest asset class and seeing the economies of scale, network effect, and branding and specialization … as principles that real estate has failed to embrace. We focus on the experience—the full-service version of WeWork.”

Marcela Sapone agreed that WeWork “rents desks, but where is the technology?” She expanded by saying that “Hello Alfred is changing the paradigm at the portfolio level and resident level … (providing) what the resident wants and what is good for the developer, offering more value without increasing the cost base and making better decisions over the long term.”

MetaProp has built a platform that combines the worlds of real estate and technology to increase and improve communication, said Zach Aarons. He added that they invest in new companies in sectors that “are maybe not the most popular right now, but predict future interest.” A couple examples were a company that adapts existing space into co-living spaces and another that offers an alternative to payday loans.

The panelists discussed the qualities of successful start-ups and entrepreneurs including the ability to focus on areas in which things don’t make sense. “For Hello Alfred, it’s saving time,” said Kelly. “At Convene, we focus on the pain points and friction points, where there’s a lack of customer centricity.”

He added that from design, to construction to leasing to how services are offered, tech that reduces friction and saves money or is additive and creates new revenue streams will succeed. “There are so many permutations … so many stones yet to be overturned.”

“There are so many things that you can’t control and things that change … issues we all face,” said Kravit. “We still have to execute the greatest idea.”

The group talked about timing and luck and that it’s okay to fail, defining failure as when a hypothesis doesn’t work and you pivot to something else. They discussed four areas of risk inherent in new businesses: business model and hypothesis, capitalization, execution and the market.

“The core elements are the first three and those you can control. Good businesspeople take responsibility for the execution of everything in those,” said Kelly. “You can’t control the market though. You ride it with everyone else.”

Sapone said, “We are our own biggest risk factor. Businesses don’t fail. Entrepreneurs quit. Pivots are improvements on business models and execution. There is always a path forward. Have that mentality for yourself and inspire that in those who work for you.”

Kravit wondered how the panelists stay on top of all the rapid changes in the tech world. The group agreed that they are proactive and strategic, not reactive; collaborate; have a clear vision and look forward; and are willing to try something new and different, whether getting information differently, meeting and talking with those who wouldn’t normally be in their circle or just having a willingness to change.


The day’s keynote speech, Investment Trends and Insights, was given by Bill McNabb, Former Chairman and Chief Executive Officer, Vanguard.

McNabb opened his presentation with a list of trends in today’s world of investment management (not specific to real estate).

“This is a dynamic and disruptive time,” McNabb said. “Everyone is wrestling with these trends in the investment management sector, and still have to make money.”

He added that he is a realist about the economy and markets in the next decade and made the following predictions: global growth is likely to shift down; inflation is unlikely to accelerate; monetary policies and interest rates are turning, but there won’t be significant rate hikes this year; and expect higher risks and lower returns in global assets.

As far as risk goes, he said geopolitical uncertainty is at the top of the list.


After a lunch break, the afternoon began with A Conversation with Jeff Blau, Chief Executive Officer at Related Companies, facilitated by Joe Gyourko.

Gyourko asked Blau to talk a little about himself and then about the massive project he is completing in New York City. “Talk about Hudson Yards. Was it a political risk? It’s the largest privately developed urban project in the country, conceived in one political era and now we’re in a different place,” said Gyourko. “How does a company like yours deal with the change in that environment and what does it mean going forward?”

Blau talked about earning his bachelor’s degree at the University of Michigan and his MBA from Wharton in 1992. He interned at Related and learned a lot there when the “firm focused mostly on affordable housing, then on high-rise buildings in Manhattan. The company maintains an 80/20 approach to development—dedicating 80 percent of its building to units at market rate and 20 percent that is affordable.

After the 20 high rises he helped develop, “a $430 million development was next,” he said. “Then we won the rights to build the Warner Center at $2.3 billion. And now Hudson Yards at $25 billion. We’ve grown fast, but it’s all about people—hire the best and brightest and there’s nothing in the real estate business we can’t figure out.”

The Yards development is located on 28 acres in the Chelsea and Hudson Yards neighborhoods in New York City. It is built over railroad tracks and sheds through an agreement with the Metropolitan Transportation Authority (MTA), which owns the land. The first phase opened in late March and when finished will comprise eight structures containing residences, hotels, office spaces, restaurants, school, and green spaces. Related outbid 12 other real estate development firms in 2008.

“It’s been quite a journey,” said Blau, as he explained the construction approach, why they chose the current design, and the businesses and attractions involved. He also mentioned the rise in e-commerce that added an unforeseen disruption to their plans.

“We have created an environment where people can live, work and play. People want the whole experience, where they can spend time, have lunch and shop,” he said. “The 25 different eating establishments have been packed all the time. Hudson Yards is the future of development in New York City.”

Gyourko asked Blau to talk about the site and how the location has proven so beneficial … about the Hi Line, which runs parallel to the development and about the extension of the subway line, allowing travelers and commuters easier access. Blau agreed and added that although they have received some negative early reviews from architectural critics, “the people seem to like it,” said Blau. “We’ve had almost three million visitors to retail in 30 days.”

“We’re deeply committed to this project,” Blau added. “We’ve developed 1,300 units of affordable housing, 23,000 construction jobs and 50,000 permanent workers. It also is a LEED platinum rated building, making 10 Hudson Yards (the first completed) the most energy efficient office building in New York City.”

The men closed the conversation by discussing how developers can be socially responsible by educating people and growing and expanding to help solve social issues.


The day’s final panel, Debt Capital Markets: What Do Lenders Want at This Point in the Cycle, was moderated by Matthew Lustig. Panelists were Jay Sugarman, Chairman and Chief Executive Officer, iStar Inc.; Kara McShane, Managing Director, Wells Fargo Securities; and Spencer B. Haber, Chairman and Chief Executive Officer, H/2 Capital Partners, LLC.

“Although we’re in a benign environment now, there is disruption in technology and the world changes regularly,” Lustig said. “How do you see the markets and what are you doing today?”

Sugarman was optimistic around the opportunities that continue to be presented in the real estate industry in part because it’s so large. “And it’s important to be at the top of the speed dial, to distinguish yourself,” he added.

Wells Fargo Securities is the largest commercial real estate lender, and McShane explained how they “do everything—agency lending, permanent lending, CMBS, fixed floating, bridge and more. Capital markets business is my focus, and it’s a huge business,” she said. “The market is super competitive in every sector—except retail. There is a ton of capital flowing into states and a lot of non-bank funds in addition to the traditional players.”

Haber talked about the need for reinvention and explained that his firm is focused on long-term investment business today. “We watch capital and determine where we’re going based on that,” he said.

The panelists discussed taking measured risks in ways that increase the likelihood of acceptable returns; ways to create portfolios that are comfortable for them as well as their clients; control of capital allocation; and the all-important nature of developing and maintaining relationships.

Lustig asked each panelist to describe their own unique approaches: Sugarman talked about ground leases and the fact that separating the building from the land makes the most sense, calling them the “holy trinity of investing; McShane reiterated their focus on relationships, saying, “We know who we’re lending to, where we need to be, and I we can’t get there, it’s for a variety of reasons.”

And Haber added that his “secret formula is to do less. We try to get the balance sheet right … you’re only as strong as the convictions of your capital. Be careful of leverage and leverage attribution and know where your equity comes from,” he said.

“Is risk elevated?” Lustig asked.

“Just do it. Just lose more. People want to do deals, have to keep morale high in the face of us losing more,” said McShane. “Spencer is right, he has patient capital. When I think of risk, it’s elevated in the debt market. People have pressure to put money to work … People will make, and have made mistakes, but the market has so much liquidity right now … that will eventually stop.”

The Center’s second annual Asian event in Hong Kong will be held on September 18, 2019. The Fall Members’ Meeting will be held on October 24-25, 2019.


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