MIT Reports to the President 1998-99

CENTER FOR REAL ESTATE

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.

Twenty-nine members of the fourteenth class of MIT/CRE graduates received their SM degrees in Real Estate Development in October, 1998. Another student completed his thesis and will receive his degree in October, 1999. The 39 members of the incoming Class of 2000, which includes six joint degree candidates, were selected from a strong applicant pool in March. The number of applicants was the largest since 1991. The new class of eight women and 31 men includes 14 international students. The average age of class members is 30 years. Eleven incoming students already hold advanced degrees ranging from law, business, and architecture to linguistics, geography, and international project management.

The center is fully supporting one ongoing Ph.D. candidate jointly in the Departments of Economics and Urban Studies and Planning and has raised funds and granted a full fellowship to an outstanding MSRED candidate, an architect from Nairobi, Kenya who will graduate in October, 1999.

There were no major changes to core courses this year, though course content continues to evolve as the real estate industry changes, particularly in the area of finance and real estate capital markets. Peter Roth, Lecturer in Architecture and a 1985 graduate of the MSRED program, is now teaching course 4.453 Building Technology in Real Estate Decision Making. He substantially revised the course content in the fall of 1998.

Five working papers were published this year by the center. One, by W. Tod McGrath, Lecturer in the Department of Urban Studies and Planning, reports the results of two surveys and one focus group conducted in 1997 and 1998 relating to real estate investment decision-making among leading real estate investment firms with the objective of benchmarking current practice. A second, by Visiting Scholar Henry Pollakowski, uses newly available data to investigate the impact of rent regulation on the maintenance of the regulated housing stock in New York City. In a paper asking why percentage rent rather than fixed rent is the rule in retail leasing, William C. Wheaton, Professor in the Department of Economics, developed an econometric model which supports the argument that percentage rental payments help ensure that landlords don't act against the interests of existing tenants when re-letting space. Another paper by Professor Wheaton describes a new model of welfare provision by states. The results raise a concern about welfare under-provision with decentralized control, as states compete to provide fewer dollars to welfare clients. Finally, Timothy J. Riddiough, Associate Professor in the Department of Urban Studies and Planning, and two co-authors, made significant changes to an earlier paper on the role of uncertainty in investment decision making. They find that the results of an option-based investment model suggest that irreversibility and delay are important considerations to investors.

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

The fourteenth summer of professional development courses brought 547 attendees to campus in June, July and August of 1998, a nine percent increase over the previous summer and the largest attendance ever. Attendees enrolled in nine courses, including two new ones. A new course on corporate real estate was very well received, as was a second new course which used case studies to reinforce basic finance concepts. The other finance courses among the summer offerings were in great demand and had to be moved to larger classrooms or, as in the previous year, have a second section set up to accommodate the surplus of registrants. Enrollment in the center's 1999 Summer Institute courses was running somewhat below 1998 figures at the end of June. There was one new course in 1999 on real estate portfolio and asset management taught by a professor from the University of North Carolina.

Income from membership held virtually steady as the center closed the year with 79 supporting members (including 10 international members). This represents a net gain of one over the previous year. With leadership from Chairman Blake Eagle, the center added 4 new members and lost 3 in 1998. 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. For a third year, Robert Danziger, retired Chairman of member firm Northland Investment, 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 highlight of the fall term was a presentation on Orestad, a new town in Denmark, by the Planning Director of the City of Copenhagen and the Development Manager of the project.

The center hosted two members meetings for corporate supporters, current students, and faculty. The December meeting discussed the question "Does Turbulence on Wall Street Mean Chaos for Real Estate." The dinner speaker, Stephen Ross, Franco Modigliani Professor of Finance and Economics, discussed the causes and impacts of large market reverses to lend perspective to last fall's near collapse of the Long Term Capital Management hedge fund and the public policy questions it raises. The morning program used a new format, as Professor Wheaton and Associate Professor Riddiough presented a number of their conclusions on the meanings of current trends in real estate economics and finance, and invited panelists from the industry to comment critically on their assertions. Attendees enjoyed the lively discussion that resulted. The May members meeting on "Cities and Suburbs in the New Millennium" featured Harvard Vice President Paul Grogan, former head of the Local Initiatives Support Corporation, as the dinner speaker. He outlined the reasons why the outlook for cities is becoming more hopeful in their competition with suburbs for jobs, population and energy. The next morning, researchers and academics described their latest findings on urban transportation, governance, job growth/decline, and central business district development. Again, there was a degree of optimism for urban prospects among all the speakers.

The 15^th anniversary of the center's founding in the fall of 1999 will be marked by an array of activities. On September 30, the Center will host a symposium at which MIT faculty and industry leaders will discuss international real estate. In connection with the 15^th anniversary, the alumni of the MSRED program have undertaken a major capital campaign with the goal of raising a half million dollars to support the Center and enhance its programs. The funds collected will go to the new Alumni Fund for Excellence in Education. The culmination of the campaign will be a Gala for alumni, faculty, and special guests scheduled for October 1.

Chairman Blake Eagle and Director, Professor William Wheaton, continued in their posts this year and expect to remain through next year. Kathleen MacNeil resigned in September to take a position in the real estate industry. Marion O. Cunningham, a graduate in Urban Studies and Planning (MCP, 1982) who earned her MBA from the Wharton School, succeeded her as Associate Director in mid-November. Ms. Cunningham has had a 15-year career in urban planning and commercial real estate lending.

A substantial program of renovation for the center's Blakeley Lecture Hall began in mid-June and is scheduled to be completed by the start of classes in September. Funds for the work are coming from the center's accumulated operating surplus and from the Alumni Fund for Excellence in Education.

Information about center programs and activities is published on the Web (http://web.mit.edu/cre/www/). This is also the primary source of inquiries by the public about the MSRED program, professional development courses, and working papers. Additions to the site this year include job listings for alumni (with a confidential url) and an alumni page to track the capital campaign.

William C. Wheaton

MIT Reports to the President 1998-99