MIT Reports to the President 1994-95

Center for Real Estate

The Center for Real Estate (MIT/CRE), founded in 1984, reached its ten-year milestone this year. The mission of the Center is to improve the quality of the built environment through education, research and facilitating communication among members of the real estate industry worldwide. To this end, it carries out research and teaching programs in the field of real estate development, investment, and management. It also provides a forum for the exchange of information and the discussion of issues by real estate professionals from around the world. The Center's principal activities include an 11-month professional degree program leading to a Master of Science in Real Estate Development and a research agenda of issues relating to the planning, development and management of real estate, including its financial performance.

In addition to its usual education, research, and membership activities, this year the Center marked its tenth anniversary with a symposium on recent changes in real estate finance called "Into the Public Markets: Real Estate and the New Financial Era." The one-day event which attracted more than 800 attendees to Kresge auditorium in November was organized by Center Director William C. Wheaton, Professor in the Departments of Economics and Urban Studies and Planning, and Blake Eagle, Chairman of the Center and until 1993 President, Real Estate Consulting, for the Frank Russell Company of Tacoma, Washington. It featured experts from academia and industry who described the securitization of real estate assets and other means by which Wall Street is supplying capital to real estate and discussed the implications of the changes in financing for the future ownership, management and growth of the real estate industry. A proceedings of the presentations was published in January. The Center followed up the symposium with a gala dinner for alumni and members which particularly honored the 30 firms which have been supporting members of the Center for the entire decade. More than a third of the Center's 343 alumni came back to Cambridge for the two events.


Twenty-six members of the tenth class of MIT/CRE graduates received their SM. degrees in Real Estate Development in October, 1993. Seven more members of the class received their degrees in February or June, 1994. Four joint degree students will receive their degrees upon completion of their other academic programs. The 39 members of the incoming Class of 1996, which includes 5 joint degree candidates, were selected from an expanded applicant pool in March. The new class is more experienced and more diverse geographically than typical predecessors. Its members are more likely to already hold advanced degrees.

To keep pace with the increasing complexity of real estate finance, Timothy J. Riddiough, Assistant Professor in the Department of Urban Studies and Planning, expanded the Center's core finance offerings to two semesters. Fall term focuses on Real Estate Finance and Investment (11.431J/15.426J). The Spring term course, 11.432J/15.427J, covers Real Estate Capital Markets.

During Fall term, Leonard J. Morse-Fortier, Assistant Professor in the Department of Architecture, co-taught course 1.413, Construction Technology and the Building Construction Process with James M. Becker, Senior Lecturer in Civil and Environmental Engineering. As new construction continues to play a minor role in the real estate industry, the ability to evaluate existing structures and systems, Professor Morse-Fortier's area of expertise, is of increasing importance.


Sandra Lambert, Lecturer in the Department of Urban Studies and Planning, completed phase two of the "CRE 2000" project on the management of corporate real estate. She was the Principal Investigator for the organizational strategy segment of the project which inquires into how the real estate unit adds value to the corporation. CRE 2000 is sponsored by the Industrial Development Research Council and Foundation which will publish the research findings in July, 1995. The research will go forward with phase three.

The China Collaborative (TCC), an initiative by the School of Architecture and Planning in partnership with Tsinghua University in Beijing and the PRC Ministry of Construction, started a pilot project in Shanghai in the summer of 1995. The goal of the collaborative eventually is to provide research and market information about the real estate market in Shanghai and to teach Chinese academics and officials about planning and development issues. However, funding support is coming in more slowly than expected so the scope of activities has been reduced. Thomas A. Steele, former Chairman of MIT/CRE, left his post as head of the Collaborative in March.

The Center published eight working papers this year. Seven of them were co-authored by Professor Riddiough and various colleagues at other universities. Four of those papers concern the performance of commercial mortgages and the pricing of mortgage-backed securities. Another paper examines the relationship between uncertainty and the rate of investment in commercial real estate. Others focus on how the potential for mixing uses or choosing uses in developing or redeveloping commercial property impacts its value. Professor Wheaton co-authored a study of retail real estate which found that several different indicators imply overbuilding of retail space although accurate analysis of the retail sector is extremely difficult due to lack of systematic data.


The center's professional education program included the 1995 Summer Institute of the Pension Real Estate Association (PREA) and the center's own professional development courses. The PREA Institute is a tightly focused professional education program for 40 pension fund real estate investors and asset managers. This is the fourth year that MIT has hosted the Institute. Faculty who teach real estate core courses were joined by Stewart Myers, G. Y. Billard Professor of the Sloan School of Management, and two outside practitioners for a two-and-a-half-day program on risk and risk management.

The tenth summer of professional development courses brought almost 300 attendees to campus in June and July of 1994, a fifty percent increase over the previous summer. A new course, an introduction to portfolio management presented by Chairman Eagle, proved very popular, as did the two finance courses which were filled to capacity. The increased demand for professional education in real estate finance held steady in 1995 as well. By the end of June, July courses including a new finance course were almost fully booked pointing to another banner season, most likely a reflection of rebounding real estate markets. A new June course on green development taught by William Browning, MIT'91 and Amory Lovins of the Rocky Mountain Institute received excellent reviews from attendees.


Income from membership held steady as the center closed the year with 89 supporting members (including 24 offshore members), a net gain of two over the previous year. The center added nine new member firms in 1995. In addition to annual fees, some members have lent additional financial support to the TCC and the tenth anniversary symposium and dinner, and many members supported the center in non-financial ways by providing case study sites, lecturing in classes and in the Lunchbox Lecture series and supporting student thesis work.

The tenth anniversary symposium took the place of the winter members meeting. The spring meeting was held in May and examined the question: "Will the Information Revolution Revolutionize Real Estate?" The evening speaker, Roger Brinner, Chief Economist of DRI/McGraw-Hill in Lexington, discussed possible economic impacts of the `Contract with America' legislation now passing through Congress. The morning session featured Associate Professor Denise DiPasquale from Harvard and Associate Professor Jeffrey Fisher, Director of the Real Estate Center at the University of Indiana in addition to Professor Wheaton and Assistant Professor Riddiough, each discussing the best uses for the real estate industry of various kinds of data that are becoming available. Several commercial providers of real estate information were invited to demonstrate their capabilities before and after the meeting sessions.

The center also hosted and organized a visit for three visitors from the PRC who met with MIT faculty and visited member firms. Professor Liu Honghu of Tsinghua University and Dr. Chai Quiang of the Ministry of Construction also presented a paper on the Chinese real estate market.


The leadership of the center remained consistent throughout the year and is expected to continue through the coming year.

William C. Wheaton

MIT Reports to the President 1994-95