0  

Advice from the Real Estate Roundtable: Real Knowledge, Real Experience

The commercial real estate industry can feel opaque and even intimidating to outsiders and newcomers. Armed with a bit of practical guidance and the right analytical tools, however, anyone can learn to navigate real estate investment and development.

To learn more about the integral components of commercial real estate, eCornell hosted a special roundtable event with lecturer Jeanne Varney, professor Jan deRoos and lecturer Brad Wellstead from Cornell’s SC Johnson College of Business. Here’s what they had to say.

What are the risks associated with real estate development?

Varney: Real estate development is a time-intensive process. It’s years of planning and construction. The designers, general contractors, architects, and engineers all have to work together to get everything finished. There’s the cost of capital itself, and the financing. Then there are unforeseen conditions, like market dynamics. There are also risks related to liquidity.

Wellstead: In the beginning, the primary risks concern the development. Next, there are schedule, budget, and quality issues to consider. Then, there are risks concerning the internal factors of the development team. There are external risk factors too.

So, from an investment standpoint, why is commercial real estate thought of as relatively sound?

deRoos: If you’ve completed your foundational work correctly, a good asset in a good market with good political support and good financing can produce solid returns for a long time. The retail industry is a recent example of how the world can change: it slowly changes, then all of a sudden there’s a tipping point.

Let’s talk about property prices and how to negotiate when properties are sold.

deRoos: Property pricing is based on expectations of what will happen in the future. It’s the intersection of two things: the cash flow that one can derive from an asset and how the capital markets treat those cash flows. When negotiating a price between a buyer and seller, first you’ll negotiate price. Once you have a tentative agreement, the focus turns to the balance sheet.

deRoos: The first rule of real estate is never fall in love with something that doesn’t love you back. That requires you to know the price at which you could sell it to the market. If it’s worth more to you than it is to the market, you hold it. If it’s worth more to the market than it is to you, sell it. The best asset management discipline is to do that rigorously on an ongoing basis.

Wellstead: It’s important to determine if you are in this for a quick turnaround, which in real estate might be two to three years, or twenty years. This decision influences how you manage that asset.

deRoos: Some create a lot of wealth for themselves by being flippers, and some create a lot of wealth as operators. A flipper is concerned about creating value and exiting at the right time. An operator is focused on leasing activity, taking care of tenants, and enhancing the property value.

Switching gears, what are the most important things to focus on when raising debt capital?

deRoos: You need to maximize your proceeds. In U.S. real estate, non-recourse means that the lender’s only recourse is to foreclose on real estate if you default. You get a free option to sell the real estate to the lender for the remaining balance, which is a bit cynical, but it’s also a very real option. You really need to limit your recourse as much as possible when you borrow.

Why is it more advantageous to raise debt capital over equity capital? What’s the variation in risk?

deRoos: Debt is cheap. Think of it this way: I want to buy something for $100. I have $30 of my own money. I need to raise $70. If I bring in a partner, they want to help me drive the bus. If I bring in a lender, they have their hands pretty far off the wheel of the bus. A lender is much less expensive.

Why is raising equity capital so hard?

deRoos: The hardest thing in life is asking someone to be your life partner. The second hardest thing you’re going to do in life is to ask someone for money. Investors are giving up liquidity. It’s really hard to get your money out. Investors give up control. They have to trust you to do the right thing to produce returns for them. You need to make that attractive by putting a structure in place that gives you all of the returns after I pay debt until you achieve a certain required rate of return, and then I get paid handsomely. It’s called a promote structure, used very commonly in private equity.

What about investment strategy advice? How do you know whether you’re making a good investment?

deRoos: Figure out how you add value and then add value to it. Ask yourself the following: “How will I add value? Do I know design? Do I have unique access to money? Do I have unique relationships with tenants? What is my value-add?” Then partner up with other people who can bring another piece to the table and do the things that really add value.

Finally, let’s discuss the economics of sustainable development.

Varney: There are growing legislative requirements when it comes to sustainable development. There’s a much greater level of education with all of the service providers, architects, engineers, designers, or manufacturers. Some municipalities even have requirements for building certifications like Green Globes or LEED certifications. They have expediting permitting processes for projects that are sustainable. There’s even a growing field for green lending.

More efficient equipment translates into less energy costs, so hopefully higher profitability, or more reliable debt service. There’s also solid research that shows sustainable buildings have higher leasing occupancy rates and higher leasing rate rental rates. Healthier indoor environments means less toxins and more efficient equipment. A LEED certified building is a higher quality building. We call it a halo effect or a positive reflection on the company.

For more information on real estate and investments, check out eCornell’s certificate programs designed by deRoos, Varney and Wellstead, including Commercial Real Estate and Hotel Real Estate, or watch the full Cornell Keynote, A Real Estate Roundtable, here.

  0  

Social Media: The Modern Day Diary

Today nearly 3.5 billion people are actively using social media. On average, people spend over two hours a day on social media apps and have an average of more than seven social media accounts. In the last year alone, social media users have grown by more than 200 million, averaging out to a new user every 6.4 seconds.

Lee Humphreys, Cornell University’s Associate Professor in the Department of Communication at the College of Agriculture and Life Sciences (CALS) recently sat down with Scott Pesner, Director of Alumni Engagements at CALS, to weigh in on the current impact of social media usage within the historical context of older communication practices.

“When I started studying mobile technologies, phones looked very different than they do today,” admitted Humphreys. “However, even seventeen years ago there were concerns about the ways that mobile phones were making us more narcissistic and ruining face-to-face interactions.”

Yet Humphreys believes that the use of social media isn’t the root of evil, but is relevant to a larger history about the ways that people use media to connect with one another. In many respects, social media is a way of documenting everyday life events.

“I define media accounting as the practices that allow us to document our lives, and the world around us, and share it with others,” Humphreys explains. She gives the example of Twitter, one of the first platforms to offer both a web and mobile version. Originally, Twitter had an 180-character limit so people could share tweets via text message, and the platform was often referred to as a micro-blog.

Looking back at the history of blogging, journaling and diary practices, Humphreys sees similarities between how people are now using Twitter. “I had always thought of diaries as these little notebooks with locks on them into which you pour your innermost thoughts. This is actually a very modern notion of diaries.” Throughout most of the 19th century, Humphreys discovered, people would share their diaries, either sitting down together or mailing back and forth. Friends and family would write in the margins, creating an element of interactivity. Young women would leave their homes to get married and send diaries home as a means of maintaining relationships. Diaries were essentially a social practice of communication.

“I define media accounting as the practices that allow us to document our lives, and the world around us, and share it with others.”

That social practice of communication has evolved into the media seen today. The degree of interactivity has changed significantly; although people would write in the margins of shared diaries, the speed at which people now exchange messages is drastically different than what was achievable through the mail service.

Humphreys defines media accounting as consisting of three different elements: the account, accounting, and accountability. “An account is something that’s tied to an identity; you can think of it like a bank account. Social media is like this, too. Media accounting is also to give one’s account of something. That means you’re giving your subjective version of an event, experience, or activity. Accounting allows us to understand the way that media accounting is used as evidence—for example, a photo of a family looking happy, or a selfie with the Pope to prove you really did meet him.

“The third aspect of media accounting is accountability. When we write something on social media, or write something in a journal, or take a picture and put it in a family photo album, we are accountable for the traces we have created for these media, because there is a potential audience.”

There is research to support that social media is also enabling a good amount of social support. As part of their accounting, people often share difficult events in their lives, and are able to immediately connect with a support network. On the flip side, social media also makes it easy for individuals to compare themselves to one another, and feel as though everyone else has a better life.

When asked about mobile phones and interpersonal relationships, Humphreys talks about a study she conducted on the usage of mobile phones in public. She discovered many people were irritated with their friends for using their phones when they were together. Upon conducting a separate, observational field study where she observed people passively in public spaces, Humphreys found that people tend to only remember extremes. She observed a lot of people integrating mobile phones into their conversation, taking photos or reading posts together.

“In fact, the phone can have a really positive influence,” she concludes. “At the end of the day, modern-day media accounting platforms are bringing people closer together, expanding networks, and creating shareable histories.”

Want to hear more? Watch the original keynote, Social Media and the Accounting of Everyday Life, here.

  0  

Certificate program develops skills in machine learning

With automation and artificial intelligence expanding across every industry and job function, machine learning – which enables computer systems to learn much like the human brain does – has emerged as one of today’s fastest-growing careers. Well-known applications include fraud-detection systems and autonomous cars.

To teach the skills to succeed in this rapidly expanding field, Cornell has launched an online certificate program in machine learning.

“Machine learning algorithms improve themselves with experience by discovering patterns in data. This approach is extremely powerful but requires a solid understanding of the underlying principles and mechanisms,” said Kilian Weinberger, associate professor in Computing and Information Science and faculty author of the certificate program.

Programmers, developers, data analysts, statisticians, data scientists and software engineers can all find value in this certificate program, available online through eCornell. Enrollees will implement machine learning algorithms using Python; practice framing problems; and construct a mental model to understand how data scientists approach problems programmatically.

Once participants complete the Machine Learning certificate program, they will understand how to create facial recognition systems using a simple machine learning algorithm, implement algorithms for real-world data, and debug and improve models through ensembling and kernelization.

Courses include: Problem-Solving with Machine Learning; Estimating Probability Distributions; Learning with Linear Classifiers; Decision Trees and Model Selection; Debugging and Improving Machine Learning Models; Learning with Kernel Machines; and Deep Learning and Neural Networks.

Those who complete all seven courses will earn a Machine Learning Certificate from Cornell Computing and Information Science and 126 professional development hours.

– Kristi Gaylord

  0  

Giving Tuesday with Cornell’s Alternative Breaks

Cornell University fosters a broad, thoughtful, and giving community, both on campus and around the world. As co-president of Cornell Alternative Breaks, one of the largest student service programs at Cornell, Jessica Wu embodies Cornell’s commitment to service. Wu, a Cornell senior and biological sciences major from San Jose, California, recently sat down with eCornell’s Jamie Bonan to discuss how the Alternative Breaks program engages in impactful service projects throughout the year.

Cornell Alternative Breaks hosts over a dozen spring break service-learning trips for Cornell students to different agencies across the U.S., all of which address a variety of social justice issues. Throughout the year, students on the trip meet weekly for educational and preparatory meetings.

What follows is an abridged version of their conversation.

Bonan: Hi Jessica! First, how did you get involved in Alternative Breaks?

Wu: I entered the program my sophomore year as a team participant and visited the Goddard Riverside Community Center in New York City. Our student team engages with two of Goddard’s programs: The Other Place, which provides integrated services to adults with histories of mental illness, homelessness, and substance abuse; and Green Keepers, which provides community members with paid on-the-job training and coaching in horticulture and street sanitation. After learning and becoming invested in the social justice issues in this community, I decided to remain with the program as Goddard’s Trip Leader my Junior year.

Bonan: And Alternative Breaks is one of the largest student programs of Cornell’s Public Service Center. Can you give some background to the history of the PSC at Cornell?

Wu: The PSC was founded in 1991 by Cornell’s president at the time, Frank H. T. Rhodes, to institutionalize faculty and student community engagement and outreach. Overall, the PSC’s mission is to champion the conviction that the Cornell University experience confirms service as essential to becoming an active member of society. ‘Service-learning’ is the philosophy that guides the PSC and Alternative Breaks. Service-learning rather than service without learning enhances academic research with practical experiences, strengthens civic values, and responds to community needs. Right now, the PSC has over 30 organizations that are entirely student-led and engages over 6,000 students. We’ve also contributed 27,000 service hours to the community surrounding Cornell’s campus.

Bonan: That’s really incredible. How did Alternative Breaks get its start as a program inside the PSC?

Wu: Our program also started in 1991, after 11 Cornell students returned from a spring break service trip and put their energies into creating a more sustainable program. Our Program Advisor Joyce Muchan joined in 1999, and we’ve since expanded to include trips to 13 different agencies, all of which cover a wide variety of social justice issues.

Bonan: Wow, 13 agencies! What are some of those agencies and communities?

Wu: Most of our agencies are in New York City, upstate New York, and Florida. It’s really important to our program that we maintain our long-term relationships with the agencies we work with; the opportunities and access that these agencies provide our students is not something we take for granted. Some of our partner agencies, like Girls Educational and Mentoring Services (GEMS) and True Colors Residence, we have worked with for nearly a decade. Other agencies, like Harlem Grown, we are so excited to have recently begun our partnership in the last two years.

Alternative Breaks Team
Several Alternative Breaks Teams in NYC

Bonan: Your program accepts approximately 100 students each year. What does their involvement look like?

Wu: It’s definitely not just over the week of spring break! Before the trip, students participate in a rigorous 12-week curriculum that provides education on the principles of service-learning, which we use as tools to reflect on our own privileges and bias as we engage with the community and agency. Every student also works on an in-depth analysis of the root causes of social issues that the agency addresses, in order to dig beyond surface-level explanations for systemic inequalities. During the trip itself, participants complete workshops and projects with their agencies and hold nightly team sessions to critically reflect on their experience. After the trip, all students in the program write a reflection paper, present on their experience in a program-wide meeting, and compare their initial root cause analysis to an analysis they work on with agency members.

Bonan: You mentioned workshops and projects that students complete on the trip. What are some of those projects?

Wu: Our student team that visited GEMS in New York City recently completed an impact study looking at the 20-year development of the anti-Commercial Sexual Exploitation of Children (CSEC) movement. Before this impact study, there wasn’t much research done on tracking the CSEC movement across time, so it’s been valuable for the agency, community, and even Cornell students back on campus. Some other students visited Womankind, a safe house in New York City that works with survivors of gender-based violence and trauma, and created a banner with quotes from survivors in their native languages, filmed a welcome video for residents, and hosted arts & crafts workshops and activities. And at Harlem Grown in New York City, students transformed an abandoned urban lot into a sensory garden, supporting the agency’s mission in urban farming, sustainability, and nutrition.

Harmlen Grown Before and After
Harlem Grown’s Sensory Garden: Before and After

Bonan: Giving Tuesday is just one day. What would you say to someone looking to become involved?

Wu: I’d say service is a life-long effort of continuous education, reflection, and community engagement. It’s never too late to start on the path toward becoming a conscientious member of society.

If you’re interested in following Alternative Breaks students on their journey, follow along on Facebook or Instagram, and you can also email Jessica Wu at altbreaks@cornell.edu.