MIT Reports to the President 1997-98



The Center for Real Estate (MIT/CRE) was founded in 1984. The mission of the center is to improve the quality of the built environment through education and research and by 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.


Thirty-one members of the thirteenth class of MIT/CRE graduates received their SM degrees in Real Estate Development in October, 1997. Another student completed his thesis and received his degree in February, 1998. The 36 members of the incoming Class of 1999, which includes six joint degree candidates, were selected from a strong applicant pool in March. The number of applicants was about a third greater than in the previous year. The new class of seven women and 29 men includes seven international students and at least two others who have worked abroad for significant periods of time. The average age of class members is 29 years. Eight incoming students already hold advanced degrees ranging from law, business and structural engineering to economics, planning, and public administration. This is not counting the joint degree students.

The center is supporting two Ph.D. candidates in the Department of Urban Studies and Planning and has offered a full fellowship to an outstanding MSRED applicant, an architect from Nairobi, Kenya who will enter in the fall.

There were no major changes to core courses this year, though course content continues to evolve as the real estate industry changes. In the upcoming year, course 4.453 Building Technology in Real Estate Decision Making will be revised due to the resignation of the instructor, Lecturer Leonard Morse-Fortier.

Three 1997 graduates of the MSRED program were jointly given the Ralph Adams Cram Award by the School of Architecture for their report on the relationship between financing and design of sports stadiums. The report, called "Field$ of Dream$," is a compilation of their individual thesis work on football, baseball and basketball facilities. The center gave its Charles H. Spaulding award for outstanding professional achievement to Patrick Kennedy, MSRED 1985, principal of Panoramic Interests in Berkeley, CA. Kennedy was awarded the semi-annual honor for developing innovative mixed-use residential projects in downtown Berkeley.


In March, the center hosted a day-long focus group on the strategic information needed for real estate decision making. Taking part were more than 20 senior executives from real estate investment firms and a number of center faculty. A report on the session by W. Tod McGrath, Lecturer in Urban Studies and Planning, will be available from the center as a working paper.

Four working papers were published this year by the center. One was a proceedings of the May, 1997 members' meeting on the growth of the public markets as a source of capital for real estate companies. In a second paper on real estate cycles, William C. Wheaton, Professor of Economics, concluded that real estate investment is not a uniform sector within the economy and that investment performance can be fundamentally different across property types. Timothy J. Riddiough, Assistant Professor of Urban Studies and Planning, co-authored a paper on the performance of foreclosed commercial mortgages to see how the actual results compared to market pricing. He found that losses were consistent with observed loan spreads, and that the default timing and loss recovery predictions made by option-based approaches to debt valuation were supported. In his paper on risk-sharing mechanisms in the redevelopment of "brownfields," Lawrence S. Bacow, Martin Professor of Environmental Studies in the Department of Urban Studies and Planning, concluded that the largest obstacle to redevelopment of contaminated sites is skepticism in the marketplace, and that the best way to combat this problem is the redevelopment of such sites by a knowledgeable end-user.

For a second year, the center hosted visiting scholar, Henry Pollakowski, a housing economist and editor of the Journal of Housing Economics.


The thirteenth summer of professional development courses brought almost 500 attendees to campus in June, July and August of 1997, a twenty percent increase over the previous summer. Attendees enrolled in nine courses, most of which ran near capacity. The demand for finance courses was so strong that an extra section of Fundamentals of Real Estate Finance, taught by Tod McGrath was scheduled for August to accommodate the overflow from the July course, and the Capital Markets I course was moved to a larger classroom. Demand for the center's 1998 Summer Institute courses continues strong. Enrollment by the end of June exceeded the total enrollment for 1997, with the real estate finance courses in great demand. New courses for 1998 include one on corporate real estate services presented by Sandra Lambert, Lecturer in the Department of Urban Studies and Planning, based on her research of the last few years. She also reprieved a reorganized version of negotiation skills for real estate practitioners which has not run for a few years.


Income from membership held virtually steady as the center closed the year with 78 supporting members (including 11 international members). This represents a net loss of two over the previous year. With leadership from Blake Eagle, Chairman, the center added 8 new members but lost 10 as industry consolidation led to unanticipated changes. In addition to annual fees, many members supported the center in non-financial ways by providing case study sites, lecturing in class, and supporting student thesis work. Again this year, Robert Danziger, retired Chairman of member firm Northland Development, organized and led a well-received occasional seminar called Real Deals, in which guest speakers from the industry dissect a specific real estate transaction in detail.

The center hosted two members' meetings. The December meeting on "Financing Real Estate Development: The Next Cycle" featured center Director William C. Wheaton as the dinner speaker. He discussed his recent research on how market cycles for different real estate products differ. He concluded that development may be coming but there is less need to worry about overbuilding in this cycle. The morning program included speakers representing sources of equity and debt and potential developers, both public and private. Sam Zell, whose Equity Office had just acquired center member Beacon Properties, was the only speaker who cautioned that the time was not yet right for new development. The other speakers warned of risks, particularly overlending by banks and mortgage conduits loosening underwriting standards in pursuit of more business, however, all were pursuing development in spite of the risk. The May meeting focused on the hot topic of the consolidation of the real estate industry and asked the question, "Is Bigger Better?" The evening speaker, industry expert, Christopher Vellturo, Ph.D. Economics '90, described the current anti-trust environment and how it might affect a planned merger. The morning speakers all described the benefits of size, particularly in the eyes of investment analysts and stock pickers, an influential audience now that so much of the industry's capital is coming from Wall Street. Economies of scale, opportunities for branding, the need to provide global services to clients and the possibilities of becoming the dominant provider of a particular real estate product in a regional submarket were some of the advantages cited.


This has been a very stable year for center administration. Chairman Blake Eagle, Director William Wheaton and Associate Director Kathleen MacNeil all expect to extend their tenures through the upcoming year.

Classroom renovations are planned for the center's Blakeley Lecture Hall. A space change request has been submitted. The plan is to raise funds during the year ahead and carry out the construction in August of next year.

Information about center programs and activities is published on the Web ( This has become the primary source of inquiries from the public about the MSRED program, professional development courses, and working papers.

William C. Wheaton

MIT Reports to the President 1997-98