Practice Versus Theory: Real Estate Opportunities and Challenges
MIT entrepreneurs Robert Danziger and Kenneth Morse speak about their failures and successes
According to entrepreneurs Robert Danziger and Kenneth Morse, real estate opportunities can be found anywhere, from New Hampshire lakeside summer camps to residential neighborhoods under threat of war in Baghdad.
Danziger and Morse were the speakers at an entrepreneurship luncheon held on Friday, September 30, during the MIT/CRE’s Alumni Reunion Weekend 2005. The focus of Friday’s program was “Practice versus Theory.” Friday’s program complemented the “Theory versus Practice” theme of the previous day, which included a talk by Robert Bransfield on investing in the industrial real estate market, and a “Real Deal” case study on the development of a commercial property in Watertown, Massachusetts.
Danziger, a lecturer at the Center since 1996, described the founding of his company, Northland Investment Corporation. As a Boston-based agent for brokers selling vacation homes in northern New England, Danziger saw a business opportunity, and expanded into lakeside property. “We bought up children’s camps that were going out of business, and divided and sold the land as lakeside lots,” he said.
But the energy crisis of the 1970s brought business to a halt. No one wanted to drive to a vacation home. “People walked away from their deposits,” Danziger recalled. With the backing of his investors, he reacted quickly to the crisis by changing the direction of his business. He pulled out of selling land for vacation homes, and moved into real estate development. Today, with the cost of energy skyrocketing, Danziger sees strong parallels to the 1970s, including many opportunities.
Danziger told his audience about the 17 C’s of entrepreneurship. “The most important C is character,” said Danziger. “Unless you have personal integrity, your plans will not work.” He sold his own company ten years ago to his management team, many of whom had been with him for 25 years. Building that strong team, he said, is what gave the company its value.
Morse is the managing director of MIT’s Entrepreneurship Center, and considers himself a serial entrepreneur. He spoke to his audience about a business failure rather than his many successes. “We went from 88 employees to four in one day,” he recalled. He still keeps his share of the collapsed company—two chairs—in his home office so that he won’t forget the failure.
Morse then described, with delight, the success of two former students who invested in Baghdad apartments. “They had cash, they spoke the language, and they were comfortable with risks,” he said. The two entrepreneurs rented the apartments to international news media personnel who were covering the war. When asked about the risk of damage from bombing, they told Morse that remodeling permits were hard to get, but in the event that the properties were damaged, they would have no trouble being able to rebuild. Morse reported that they raised $50 million with a payback period of six months, returning 300% on the funding, and “they still own the properties!”
The luncheon speakers responded to a range of questions from their audience, including how to find capital, how to avoid conflict of interest (“No conflict, no interest,” quipped Morse), and how to judge the worth of an idea. Danziger detailed the importance of securing non-recourse loans, and of looking to family and friends as the first source of funding for small projects.
Among those attending the luncheon were alumni R. Perry Neilson, Jr. and Anthony Caner, who were attending their twentieth reunion. Neilson and Caner reminisced about being members of the Center for Real Estate’s very first class of graduates, welcomed by Lawrence Bacow. Looking back over their careers, they confirmed the speakers’ emphasis on integrity, saying “Your handshake has to be your bond.” They also emphasized the importance of a balanced team, noting that as MSRED students they had studied with urban planners, civil engineers, and architects, as well as management and finance specialists. “We very quickly learned to appreciate other people’s talents,” said Neilson. Echoing the day’s theme of “Practice versus Theory,” Neilson said, “That’s hard to teach. But at the Center, we learned by doing.”