Here is the recording of our recent panel discussion on REITs in India hosted online by the Misra Center of Financial Markets and Economy of the Indian Institute of Management Ahmedabad. Dr Vivek Sah, PhD, the Director of UNLV Lied Center for Real Estate co-hosted the event with me. Mr. Alok Aggarwal, the CEO and MD of Brookfield Properties, one of the first three REITs in India shared his views on several interesting questions related to the future of REITs and how have REITs exhibited relatively stable returns despite the pandemic. Dr. John Worth, the EVP of Research at Nareit, USA described the evolution of REITs in the US, and how they have claimed an increasingly important place in the investment space. The audience was actively engaged, and spurred some interesting discussions. Towards the end, the co-hosts attempted at answering several questions posed by the audience.
Here are the highlights:
What is special about investing in, or management of a REITinvestment vehicle? How did REITs evolve in the USA? How have REITs managed to deliver high performance despite the pandemic? Where are the REITs headed from here? Will India benefit from a REIT consortium?
“Those Who Can, Do. Those Who Can’t, Teach”…Really?
When teaching becomes our daily chore, we are prone to behaving like “copy-paste” consultants focusing more on checking the hours in rather than on improving the #learning experience. Erich Griebling in his 1940 article in The English Journal candidly writes: “… Most of us (teachers) are pretty enthusiastic during our first four or five years of teaching… (and) gradually… we crawl deeper and deeper into the easy maze of routine… (with) our personalities… lost.” Clearly, in some cases, an industry professional’s grievances with academia are justified.
However, during the early twentieth century, that bold statement could have been directed at professors’ meager salaries compared with those of their students. On the contrary, nowadays the statement may very well reflect the resentment against relatively higher wages earned by business professors, especially in developed nations.
Perhaps, years of oft-brutal intellectual criticism that academics face from the anonymous journal referees (and – sometimes – from conference discussants) helps academics develop a “thicker skin.” As a result, one does not often see many formal academic retorts to this statement. Yet, academics are not indifferent to the issue.
As a professor, it would be pretentious to say that I do not want to react. So, allow me to dissect a few possible arguments that lead some practitioners to repeat, under their collective breath, Griebling’s statement:
1. “Teaching is easy”
Indeed, teaching can be easy; but for those who work hard to make it easy for themselves (and those who have some natural pedagogical instincts). For the rest, it is an uphill battle – at least – for the first few years. Teaching delivery at B-schools is an art, not much different from music or theater. Would you risk trying a performance on stage without preparation? Teaching business courses, in particular, requires one to stay abreast with market trends and be comfortable with the ever-evolving analytical framework (in academese: playing simultaneously with “relevance” and “rigor”). Some are naturally good at one. Some at the other. Yet, the balance between the two is difficult.
Knowledge of the subject matter – well beyond the scope of the curriculum – is only one pre-requisite to being a good pedagogue. Teaching is also, and more importantly, about how we disseminate the knowledge. One may have seen some blank-faced guest speakers in front of students when asked to “teach” something, simply because they underestimated the challenges of the task. The student in front of you is smart. She is eager to know from you what she does not already know.
As I select my guest speakers (practitioners) carefully, they have always proven to be phenomenal presenters (and many, as teachers).
2. “It’s best to learn from industry practitioners”
Managers from the industry are the protagonists of business education, without any doubt. Enlightened practitioners teach the next generation from their successes. Failed practitioners teach what not-to-do (often through business case studies; Not in-person). Without engaging the successful practitioners, a course is incomplete.
However, a successful B-school will create a fine balance between practitioners and professors in delivering the curriculum.
Practitioners are a reflection of the industry. They show how things are done; Which is an important goal of business education. However, business school students are also looking for (or, at least, must be exposed to) a critical view on how else could things be done better.
Besides, teaching a majority of business topics require specific pedagogical skills. If the aim of education is to improve the world, academia addresses this need by presenting counterfactual scenarios which may or may not even be practiced. A blind respect for “this-is-how-it-is-done” germinates the infamous “herding” behavior which may lead to catastrophe. No doubt, several innovative enterprises have been successful in this goal of training their own work-force as well. But even there, the trainers have to be skilled in the art of training.
So, a more valid question to ask is whether the traditional university setting is the only effective method of teaching; Not whether teachers are important or not.
3. “Professors have too much leisure”
Actually, professors have an immense workload. The classroom hours are just the tip of the iceberg. Each class session requires preparation. Each class discussion is physically and mentally exhausting (no matter how much a professor loves her area). Course design, revision, content development, session planning are all necessary ground work. Trying to deliver an effective learning experience to students with consistently varying expectations takes its emotional and physical toll. Then comes the question of creating exams, retake exams, case studies, exercises, projects: mastering them all and grading them all. Besides, a professor is scrutinized by a large number of students, supervisors and other stakeholders with expectations that are often different, if not outright contradictory.
On the top of all this, most university professors also have serious research commitments. The research goals (i.e. “publishing in ultra-picky peer-reviewed journals”) are vague and the path to reach the goal is thorny, long, hazy and lonely.
The ever-growing pressure may not be visible, but it claims a large part of a professor’s routine. That routine includes, but is not limited to: earning research grants, serving on various committees, supervising student internships, dissertations and ad-hoc coaching sessions, providing career support to students, and completing mundane administrative tasks.
Prof. Julian Diaz rightly put it (and I paraphrase): Professors do not have more leisure time, but they do have some discretion about what they want to do with their time. This discretion is what they have earned through years of hard work.
4. “Research is useless, if we cannot apply it”
Business competencies are – essentially – applied sciences (and arts). Therefore, the need for applied research is real. It is also true that at several research-focused institutions, professors give research output higher priority, to the detriment of teaching quality. I personally believe that a research professor owes it to society to present his research findings in an accessible language, even if the core topic is theoretical or esoteric.
However, the premise that academic research is useless could not be further from truth. For a community, focusing solely on applied-research is myopic at best and self-destructive at worst. The human race has evolved because of its intellectual pursuits. Creating new knowledge is a rigorous process that is under strict scrutiny. It has always been so. The process is tedious and slow. But it helps us to take yet another step forward towards progress.
A world without academic research would become chaotic. Just because one does not see a major, short-term application for the research she is conducting at the time does not mean said research is worthless. Einstein’s theory of relativity was purely academic. But several decades later, we have started using it in our GPS systems. Statistics suggest that the more a growing nation invests in research, the faster it grows.
5. “Academic career is not a preferred choice”
It is true that academia is not a preferred career choice among most young business students. Sometimes this lack of interest is due to their genuine passion for entrepreneurship and wealth. Sometimes, it is simply a result of indifference due to a lack of orientation.
However, this argument stems from a notion that an educator’s paycheck is miserable. Unfortunately, nations where professors are poorly paid are less competitive, in general. Countries that value their educators are more prosperous. In more sophisticated higher education systems, surviving a PhD program – only to then cope with the pressures of an academic job – is a challenging task.
“ Follow what a professor says, not what he does!”
Many professors, indeed, have never worked in the industry. Others built a successful career in the industry and then either got disillusioned, or found an overpowering interest in intellectual pursuits. Many of them continue a strong engagement with industry through consulting projects. Yet, doing (also) what a practitioner does is just the icing on the cake. A professor’s fundamental goal is to create/disseminate knowledge which eventually nurtures successful managers. If they are achieving this goal, they are already “doing” what they do the best.
In fact, most professors enjoy the task of teaching. Grooming the leaders of the future is an immensely satisfying task. Those with research responsibilities further strive to question the status-quo, and for good reasons.
I vividly remember this important episode of my career. “Those Who Can, Do. Those Who Can’t, Teach”, ranted a fund manager during an event organized by my university. That young PhD scholar (and soon-to-be-professor) heard it (yet again) and was visibly agitated. He says to his mentor, in private: “Professor, doesn’t this statement often come from attention-seeking wannabes? …And how could those professors standing in the room stay silent?”
What I cannot forget is the calm, reassuring and a rather deep reply from one of my favorite professors of all time: “My dear, it is not their job to understand us. It is our job [as academics in a business school] to explain their behavior.” This article, perhaps, is an endeavor in that direction.
Image courtesy: Unsplash (with Creative Commons license). Thanks to Alex Jones, Reginar, Geronimo Giqueaux, Carl Heyerdahl, Michael Parzuchowski, Mikael kristenson & You X ventures
Going abroad for work or study is almost a fad in many engineering colleges of India. As an undergraduate student, I subscribed to the fad. When at home (even in a country as culturally diverse as India), I naively perceived ‘Western’ countries as a socio-cultural monolith. Despite professional experience with multinationals in major cities of India, the idea of ‘foreign’ culture was not well understood. No wonder, graduate studies at Texas A&M University came with an immense amount of cultural shock, both at academic and social levels. Until then, the Nehru-era notion of “democratic socialism” was deeply ingrained in my worldview, and I carried some prejudices about capitalism by default (some do not cease to exist yet). An intense campus like Texas A&M clearly breaks many of these prejudices.
In particular, moving to an American college town from another country makes the transition even more drastic. You do not see the sky-scrapers sprinkled all over the map (isn’t the US all about just them?) and may not have easy access to transportation (public or private). Your life may revolve around trips to school (and back) and sporadically to a local gas station for groceries. For those without a car, shopping at a Wal-Mart, or eating at an ethnic restaurant situated a couple miles away may be a remote luxury. Yet, you do not feel like Robinson Crusoe on a desolate island. The experience is rather pleasant. The sensible hospitality of American friends, their inclusive, non-judgmental nature, and selfless assistance make it all worthwhile.
Indeed, large American universities are a cultural melting pot, both inside and outside the classroom. What binds people together (locals and expats alike) is the quest for building the desired competencies at personal, social and academic levels. This characteristic can be observed across the breadth and depth of urban America. I witnessed this during my stays in Dallas-Texas, New York and Atlanta.
Unemployed in the aftermath of global financial crisis, the business school at Georgia State University rescued careers of several academically-inclined graduates who enrolled in Ph.D. programs. I was one of them. Having attended classes at three universities in different parts of the US (Georgia State, Texas A&M, and NYU), I developed an admiration for the pedagogy offered by the American higher education system. In my opinion, such a system facilitates maximum utilization of a student’s inherent capability rather than pushing them towards an extrinsically created maximal target. Great professors, who often happen to be good researchers, make this experience particularly enjoyable.
After spending over six years in the US, one will barely see this one country as a monolith (..and did I mention the “West” earlier?). But, right when I started telling the difference between the “Ya’ll” versus “You all” versus “You guys” versions of American English was the time when my wife and I decided to move to continental Europe.
Joining the picturesque Ecole hoteliere de Lausanne (EHL) in Switzerland further broke the myth of a monolithic “West”. You experience at least four different (read ‘very’ different) cultures within Switzerland: French, German, Italian and expat [There is a fifth one- Romansch, but you need to be really motivated to witness it]. Bestowed with a rich history, culture and socioeconomic philosophy, Switzerland presented itself as a whole new world.
I observed that while the socioeconomic system in the US revolves around a consumer, it was almost the converse in Switzerland. The Swiss system is based on deep social values where community protocols are paramount in preserving a high-quality individual life. Many people find these protocols at their “extremes”. The European culture in general and the Swiss culture in particular present a middle ground between the US and the Orient. For example, to witness families with prams strolling in downtown areas late after business hours was a pleasant surprise. This may be common in many Indian cities, but is a rare sight in most US cities. At the same time, the economic sophistication, social security and infrastructure development in Western Europe is inspiring.
But, expensive Switzerland is, despite substantially higher wages. The almost triple-priced McD double-cheese burger and the Pike-Place blend Starbucks coffee quickly chipped off our daily lifestyle. The mantra of ‘this lifestyle is healthier’ was a solace in the drastic transition. My family no more eats-out five times a week. Living in a spacious single-family home has become a moving target. But despite all this, the quality of life seems to have improved substantially. Besides, the vicinity to Paris, Venice, Milan and several other touristic locations is a major boon.
In Swiss cities, every morning one feels blessed by the freshness of air (even in urban areas) and the sight of ever-changing colors of the Swiss Alps from bedroom window is not a rarity. The sound of silence right in the middle of the city during Sunday afternoons, only to be occasionally broken by church bells, feels truly great. As ironic as it sounds, the community protocols in Switzerland ultimately enhance the privacy of individuals. What is particularly striking about the Swiss culture is the people’s curiosity and knowledge about cultures beyond their own. This curiosity feels a little different from that barber in College Station, Texas who once innocently asked me if I daily rode an elephant to my school in India. From street-hawkers and postal clerks to professors, bankers and random co-travelers in high-speed Swiss trains, they are eager to learn about you. No one is satisfied by “India” as an answer to their query about where we come from. They like to know further about “where in India, exactly?” People’s commitment towards sustainability, vegetarianism, and respect for others seems very authentic. And yes, Europe has got history which is well preserved.
Despite the ubiquitous cigarette fumes (not excluding the public places such as railway platforms), the Swiss cities bustle with life. You dedicate evenings and Sundays to your personal or family lives (you do not have a choice, actually, because the shops are closed anyways). You learn to replace the habit of binge-shopping (who can afford that in continental Europe?) by mountain hiking, swimming, skiing, boating, or just picnicking in a scenic park nearby. Over time, we started loving this discipline which, in early days, seemed to be externally forced.
To modulate my pronunciation of English words and comprehending varied accents (Southern, in particular) has been a necessary evil. However, now we can tell between the British, Scottish, Irish, French, German, Italian, Romanian (…and you name it) versions of English. For a person raised in a conservative setting in India, social interactions have presented a steep learning curve. For example, the traditional Indian culture recommends a gender-based greeting where it is a courtesy to offer more space to ladies. You politely say hello, but need not even shake hands. Americans are more gender-neutral in this respect. If you hug men, you should expect a warm hug from women alike (which, by the way, is a big no-no in most Indian settings). However, in Switzerland hugs may be restricted to close family members, but les bises (three kisses on the cheek) is expected. For me it has taken conscious effort to match the location with the greeting etiquette. Sometimes, you learn the hard way.
On a More Serious Note: Academic Differences
“We are all the same” – Dalai Lama
Development (and acceptance) of real estate journals and adoption of several academic books globally builds a level of comfort and uniformity across the world in fundamental understanding of the discipline. What changes with location is a nuanced set of specificities; but does not that add to the vibrancy of our world? Having worked as a consultant for industry bodies, or as a visiting professor in several countries across Europe and Asia, I have witnessed common challenges in real estate markets. Yes, they vary in their extent. The beauty of academic community in real estate is that it is a small world. Be it the ERES, ARES or AsRES (i.e. various academic conferences for real estate across the world), one gets to meet a significant number of familiar faces more than once every year.
Beyond the wonderful cheese, mesmerizing landscape, pleasant climate and proximity to a large number of historic cities, the opportunity to apply the real estate education acquired in the US to a new context promises a dynamic career. Several schools (including mine: EHL) prefer internationally or American based accreditation which helps streamlining one’s academic background with the context.
However, unlike the US and some other countries such as the UK and Australia, business disciplines in Switzerland appear to be clubbed into bigger, more generalized boxes. Real estate, in particular, appears to be at the receiving end. For example, despite a robust industry appetite for real estate professionals, universities often consider real estate as a sub-domain of finance. As a result, premier real estate journals are rendered subordinate to general finance journals. This challenges real-estate focused researchers, who are schooled in a real estate-centric research paradigm rather than wearing the lenses of general finance to answer real estate questions.
Because of relatively smaller (although of high quality) academic community in real estate, younger academics in Europe maintain some discipline-fluidity (across real estate, general finance and economics) as a risk-management strategy for the job market. Yet, in some other disciplines this challenge is subdued. For example, in Management Sciences schools may dis-aggregate OB, HR, Strategy, Leadership etc. as separate areas when shortlisting top-quality journals. Nevertheless, the access to resources for research (e.g. funding) is relatively generous. My school, in particular, focuses on balancing academic rigor with industry relevance. This comes with superior academic freedom on developing the research agenda and teaching curriculum. Besides, a specific focus on hotel assets and more attention to Europe, a burgeoning real estate market, adds to the fun.
[This article is a slightly modified version of the original article published in the American Real Estate Society Newsletter in 2017, edited by Dr. Julia Freybote.]
Dr. Crocker Liu, the Robert A. Beck Professor of Hospitality Financial Management at SC Johnson School of Business (Cornell University) addressed an audience of industry-leaders and academics during the HFE Conference hosted by EHL Lausanne. The record heat in the Alpine nation that day did not deter the audience from attending his engaging opening lecture of the second day titled “Analysis of HOTel Trends.” The theme for this year’s conference was “Indices” and Dr. Liu grounded his lecture on the hedonic-modeling based hotel valuation index he has developed at his school.
In this article, I will present my interpretation – some salient take away’s- from Crocker Liu’s insightful keynote lecture.
Hedonic indices are technically intense. So, how they are developed is a different story altogether. Let us focus on some industry-friendly insights [… and I will seamlessly inject my own views on the subject]:
Unlike popular financial assets such as stocks and bonds – which are traded at high frequencies (e.g. daily) – real estate assets trade once in a few years (for example, my ongoing research with Dr. Cedric Poretti suggests that among the hotels held by institutions between 1990 and 2018, 40% were never sold. The rest were sold – on average – every 5 to 11 years). Unlike “exotic” (and less popular) uses of commercial real estate (CRE) indices (e.g. synthetic securities/ derivatives etc.), for brick-and-mortar CRE investors, indexes could be used as long-term, strategic tools for decision making.
One meaningful application of CRE indices is to detect turning points, says Dr. Liu.
He provided two methods to detect the turning points.
Normalizing the CRE Index Using Z-Score
“While Year Over Year (YOY) gains are a great way to address seasonality issues and take on a more ‘over time’ perspective, a fixation on YOY gains may hide turns in the market. An easy Solution? Complement YOY with Z-Score analysis.
In colloquial terms, when transformed into their Z-score [refer to Business Statistics 101] , CRE indices no more tell you where the index lies; but how far it is (above/ below) its expected value (i.e. long-term average). For example, it is “abnormal” when the index goes beyond + 2 Z-scores. Looking at the following figure, one can infer that when Z-score in YOY change exceeds the Z-score of Price change, it may be construed as a “bubble” in the market cycle (or a “bust” when the scenario reverses).
2. Comparing Index value to its Moving Average
“Mean reversion is a well-accepted phenomenon in finance: asset prices (returns) eventually return to their long-run mean or average. A reversion involves return to ‘normal’. But the ‘normal’ pattern is dynamic (i.e. time-varying)”, says Dr. Liu.
Think in terms of prices: they will increase over time simply because of inflation. Therefore, CRE investment strategy based on mean reversion needs to account for the dynamically changing mean. Moving averages (calculated over recent few years) serve the purpose.
The following figure provides a thumb-rule for the mean reversion based investment strategy. Dr. Liu says, “buy (sell) stock or other securities (e.g. real estate) if their current price is above (below) their historical moving averages.”
The conference included detailed discussion on various other indices developed by EHL faculty. Many will be announced by our Real Estate Finance & Economics (REFE) Institute in coming months. One such exciting index relates to hotel market equilibrium in which I worked in collaboration with STR (now CoStar). Among others, Steve Hood and Naureen Ahmed of STR were instrumental in making this index a success.
Each hotel is a real estate asset. A student of hospitality business, therefore, must master real estate competencies. Learning how to work with numbers is an essential pre-requisite to claim a leadership position in the industry. These were some of the practical insights shared with the students of EHL by Barry Bloom, Ph.D., the President and COO of Xenia Hotels & Resorts, Inc., a leading hotel REIT listed on the New York Stock Exchange.
Dr. Bloom is as much academically inclined as he is an astute industry executive. This was easy to gauge when I met him earlier this year for the first time at the American Real Estate Society Conference, a leading academic conference. He graciously accepted the invitation to visit EHL and deliver his lecture.
His decorated career shows a fine balance of research orientation and deep industry insights. These qualities, naturally, kept the audience riveted over the course of the hour-long talk.
He stressed four critical components of hospitality real estate investment management:
1. Acquisitions: The Mantra of “Buy Low, Sell High” is the key to prudent asset acquisitions. Operating fundamentals are as critical to acquisition decisions as is the potential for price appreciation. One must shun acquisitions that are driven primarily by ego. The bottom-line is to identify assets with strong upside potential.
2. Operations Oversight: Asset management entails efficiently “managing the managers”. Rigorously structured activities and ongoing, careful analysis of each hotel in the portfolio ensures generating optimal value from the owned assets.
3. Capital Expenditure: Beyond the regular “reserves for replacements”, a careful budgeting for capital improvements to the owned assets may lever the returns up. Such improvement plans, however, must be based on a strong vision and clear evidence that marginal returns will increase over time.
4. Disposition: After acquiring assets and improving their performance, their disposition is a critical strategic decision.
Students of hospitality business should learn as much as they can about these four areas and how they relate to each other. Developing spreadsheet models and becoming increasingly comfortable with numbers is an essential first step. A good investment manager has a strong handle on valuation methods, the profit & loss statement and benchmarking reports.
Barry briefly described the history of Xenia which was of great interest to the students who were just introduced to REITs this semester. More importantly, he also offered some softer advice to students:
Understanding the Time Value of Money is a key to success.
Written communication, in particular, is critical. It is extremely important to review and proofread everything before sending it to anyone.
“Life is a Marathon, Not a Sprint,” and one must not be afraid to take the “road less traveled”.
Although one is responsible for one’s own career management, it helps to find mentors.
In our lives, we are faced with things that matter and things that we can control. These two sets of “things” have very little in common. We must focus on the intersection of the two.