Real Deal

During the 2009 spring semester, a group of 10 second-year students took part in the inaugural Real Estate Capstone course that saw them devise a long-term growth plan for downtown Lebanon, Tenn., a city just east of Nashville. The specific thrust involved transit-oriented development.

From the Fall 2009 edition of Vanderbilt Business

RealDealAcademics often like to talk about providing “real-world experience” for their students, but the real estate program at the Owen School has ventured beyond the standard rhetoric.

During the 2009 spring semester, a group of 10 second-year students took part in the inaugural Real Estate Capstone course that saw them devise a long-term growth plan for downtown Lebanon, Tenn., a city just east of Nashville. The specific thrust involved transit-oriented development. The course was led by Jacob Sagi, Vanderbilt Financial Markets Research Center Associate Professor of Finance, and Thomas McDaniel, MBA’02, Adjunct Professor in Real Estate Finance and Partner with Boyle Investment Co., a real estate investment firm with offices in Nashville and Memphis, Tenn.

“The motivation for the course,” Sagi says, “is to challenge the students with realistic development projects with tough issues—from working with professionals in diverse and often very different fields to trying to balance the value added to developers and communities.”

The Owen students teamed with 16 advanced urban design students led by Associate Professor T.K. Davis from the University of Tennessee’s College of Architecture and Design. Working in a truly collaborative process, the Owen and UT students devoted the semester to identifying four potential infill development sites within a half-mile radius of Lebanon’s Music City Star commuter rail transit stop. The stop is located near several key attractions—the historic town square, a greenway, a 200,000-square-foot retail facility, and Cumberland University—all potential drivers of future development.

While the UT students handled the design aspect of the project, the Vanderbilt team conducted a market analysis, developed marketing strategies and detailed pro forma financial analyses of the four sites, and researched legal implications and potential public/private partnership strategies to make the development projects feasible. The process was very practical, Sagi says, as the students earned hands-on experience, interacted with a variety of respected officials and—perhaps most important—made potential professional contacts and friendships that could prove invaluable.

At the semester’s end the Owen and UT students presented their proposals at the Nashville Civic Design Center to an audience of about 100, including many from the Nashville chapter of the Urban Land Institute. ULI members critiqued the student recommendations for the four sites, and the proposals were exhibited at the design center.

“Our final presentation at the Civic Design Center was very well-received,” says Shelby Pool, MBA’09, who graduated in May with an emphasis in real estate and finance. “As a group, we presented many well-researched projects and were able to touch on both the positives and negatives of the various proposals.”

Pool describes the Capstone course as “real world-based.” She says, “There was a lot of room to think outside of the box and present creative ideas and solutions.”

Lebanon-3panelsBuilding a program

Sagi says the course took the students beyond academia to help prepare them for working within a challenging economy. Real estate development focuses on uncovering opportunities and minimizing risk in a highly complex environment with various stakeholders whose interests often conflict, he adds.

“It is hard to appreciate this from a completely theoretical or traditional case-based academic approach,” Sagi says. “There are few programs in the country that offer such an opportunity to their MBA students. We’re hoping to continue and improve on our experience this year, and hopefully create a sustainable model for such a course that would be the envy of other schools.”

Sagi says the idea for the program stemmed from his interactions with colleagues in the real estate program at the Haas School of Business at the University of California, Berkeley. Haas stresses an interdisciplinary experience of real estate development and investment. The program interacts with the UC schools of architecture, urban planning, law, and construction engineering.

At the time, Sagi foresaw Owen as allowing for a different model, but one that could take cues from Haas. “Because we do not have access to such a diverse set of schools at Vanderbilt, I floated the idea of collaborating with the UT architecture students to T.K. Davis (then Design Director of the Nashville Civic Design Center). He was very excited about the idea, and the rest was simply a matter of coordination.”

Still, a star was needed since Sagi admits he has little expertise in development. To fill this role he tabbed Thomas McDaniel, a fellow professor at Owen. “Thomas is truly the brain and brawn behind it, and the course could not have been managed without him,” Sagi says. “While I tried to keep abreast of the progress of the course during the semester, in the end my contribution to the whole thing was minimal.”

Sagi’s modesty aside, his visionary move resulted in an important learning experience, according to Owen students who participated in the course.

Matthew Treble, MBA’09, says the academic experience helped him better understand the challenges developers face in a tough economic climate. Those challenges were amplified by the architecture students, who approached the effort more from a creative perspective.

“The UT students were immensely talented and did great work,” says Treble, who graduated with an emphasis in real estate and finance. “However, many of the designs were not economically feasible, and it was difficult to rein in their vision for each site’s end product. I found that to be the most interesting part of the course.”

Treble says McDaniel helped the students model the project by effectively defining the parameters of each site and the projected elements expected to yield success for those sites. “We were also forced to research different sources of funding, public and private, in order to make many of the site plans feasible,” Treble adds.

Pool says the course provided substantial experience for those students wanting full-time jobs in commercial real estate. “Many students already had some prior real estate experience,” she says. “But for those who may have just worked on the finance side in the past, this course gave them the opportunity to dig into, say, the construction and/or development side of the industry.”

Pool believes the program is a benefit not only to the students but also, potentially, to would-be employers. “The Capstone course is a great addition to Owen’s growing real estate program,” she says. “I think it will help local developers become more aware of the talent at Owen and [their] growing interest in local real estate opportunities.”

There are few programs in the country that offer such an opportunity to their MBA students. We’re hoping to continue and improve on our experience this year, and hopefully create a sustainable model for such a course that would be the envy of other schools.

—Jacob Sagi

McDaniel shares Pool’s enthusiasm for the course’s long-term potential. He and Sagi continue to meet to discuss feedback. The duo wants to refine the two introductory courses: Real Estate Finance & Capital Markets and Real Estate Investment & Development. “Our new initiative is to further strengthen the school ties with real estate alumni, perhaps the one last missing link,” McDaniel says.

Creating that linkage is a worthy goal, one from which the graduate program could benefit. Given his career in the commercial real estate industry, McDaniel seems suited for the task. The adjunct instructor says Vanderbilt has made a concerted effort to ramp up its real estate course offerings. That work has resulted, he believes, in the program’s competitiveness with those at other top-tier graduate business schools.

“We want the real estate program specifically to hold its own with the top programs,” McDaniel says, recalling the creation of a formal Owen real estate program two years ago. Today Owen students can take courses within the real estate MBA emphasis (one of four emphases and eight concentrations).

The real estate emphasis comprises three required courses (Real Estate Financial Analysis, Real Estate Investment & Development, and Real Estate Finance & Capital Markets) of two credits each. At least two additional hours of course work are required from six elective courses (Urban Transportation Planning, Construction Project Management, Construction Estimation, Construction Planning, Property Law for Business Students, and Commercial Real Estate Transactions). The first four courses listed are four credits each, with the latter two being one credit apiece. The Real Estate Capstone course can be taken for four elective credits.

“We are competitive with other top-level MBA programs that offer a concentration in real estate,” says McDaniel, who graduated from Owen himself in 2002. He describes the Capstone course as the equivalent of a thesis project: “It’s intended to be a culmination and summation of all the tools the students were equipped with during their two years at Owen.”

Ryan Seibels, MBA’09, who recently obtained his MBA from Vanderbilt with an emphasis in real estate and finance, says he feels the real estate program holds its own with any other similar graduate program in the nation. He says the curriculum prepared him well for a difficult economy.

“The challenge now is growing the number of students who are interested in pursuing a career in real estate,” Seibels says. “If that number can continue to increase and those alumni are willing to give back to the school, then the real estate alumni network will only grow. That’s how the top-tier real estate schools excel.”

From left, Professors Jacob Sagi and Thomas McDaniel
From left, Professors Jacob Sagi and Thomas McDaniel

Future developments

Seibels describes the partnership with the UT architecture students as unique. He also says interacting with Lebanon officials and community members—and assessing how the Music City Star transit stop could one day greatly benefit the town as a mixed-use node—proved interesting. “It greatly helped shape the developments that we proposed at the end of the course,” Seibels says.

However, such a major academic undertaking does not come without its difficulties, he adds. “The logistics alone made the course somewhat challenging,” he says. “While working with UT students provided great benefits for us, it was difficult because we could not just call or e-mail them and set up a meeting to really dive into their designs. Instead we were left to assemble about once a month to hear new ideas and designs and to try to solve problems and discuss all issues.”

The Capstone course is a great addition to Owen’s growing real estate program. I think it will help local developers become more aware of the talent at Owen and [their] growing interest in local real estate opportunities.

—Shelby Pool

Sagi says the concept for the project course was very fluid and experimental. He and McDaniel anticipated the challenge—and, at times, difficulty—in coordinating between the UT and the Owen students. Lebanon officials helped ease the occasional stress.

“I think we were all pleasantly surprised by the interest paid to the endeavor from the community in Lebanon,” Sagi says. “There was significant participation in the various meetings held, and it was important for our students to see how the planning process unfolds and experience the potential excitement and tension associated with a mixed-use urban revitalization project.”

Magi Tilton, Planning Director for the City of Lebanon, served as the local coordinator for meetings and public input. She praises the Owen students’ work, which included potential lease rates, rate of return on investment and analysis of potential project phasing. Though her contact with the Owen students was minimal, Tilton came away impressed with their presentations and professionalism.

“The feedback I received from residents and business owners was that they were excited about the possibilities that were presented,” she says. “This was an educational experience for our citizens to learn about development and design opportunities. The City of Lebanon Planning Department plans to build on this work by keeping the communication lines open and continuing to provide information regarding alternative design and funding options.”

As to what the Owen students’ proposals might one day render, Tilton is optimistic. “I hope the ideas and information presented by the Vanderbilt and UT students will spark an interest and lead property owners and developers to build on the student projects in their plans for development here in Lebanon,” she says.

Time will tell if the Owen students’ analyses and recommendations actually will be realized. However, UT’s Davis, one of the state’s most respected architects/planners, says the Owen students did a “fantastic” job of learning how to balance design, construction and city planning with the art of real estate deals and the often arcane elements of the industry.

“I was very impressed with the Vanderbilt students, and I would say things went as well as could be expected given the logistical challenges,” he says. “In some ways we simulated the real world of design and development, where the client investor may be based in one city and the design team in another, with periodic face-to-face meetings supplemented by telephone and Internet communication.”

From left, Ryan Seibels and Matthew Treble
From left, Ryan Seibels and Matthew Treble

Davis says the students’ work revealed that transit-oriented development of a very high quality could be profitable for a developer if the existing Music City Star Lebanon station site (which is controlled by the Nashville-based Regional Transit Authority) could be either purchased or leased for development.

“This would be a win-win for the city and for ridership on the Music City Star,” Davis says, adding that about 250 dwelling units could yield as many as 375 daily commuters on the train.

The three other sites within a 2,500-foot walking radius of the station did not project to be profitable for high-quality development without the use of tax increment financing, he says. Tax increment financing uses future gains in taxes to finance current improvements. It is the primary urban redevelopment tool in use today in the United States.

“With the designation of an urban revitalization area in and around the historic town center of Lebanon, tax increment financing could be utilized as a tool to make other sites viable for profitable development,” Davis says.

The Owen students would be pleased to see such a scenario unfold. Actual future development that takes into consideration their financial, market and legal analyses would validate their academic labor.

“We were pretty certain if anything comes out of it, it will be years down the road,” Treble says. “But we’re hoping something happens. We’ve done most of the heavy lifting, so it would be nice if a developer could hit the ground running in the future. It would add legitimacy to the Owen program and our efforts.”

Regardless, the team benefited greatly from the experience, one that will be repeated in some form as Owen continues to use the Capstone course to elevate its real estate presence.

“The Capstone course is crucial to the real estate experience at Owen,” Sagi says. “After a ‘burning-in’ period in which we learn to maximize the value of the students’ time and how to coordinate between the various disciplines, we’re hoping to also involve at some point—in addition to architecture students—graduate students from the School of Engineering, Peabody College’s Community and Research Action [program], and the Vanderbilt University Law School.

“Yes, we like to dream big. We will have something worthy of national renown in the education of real estate MBA students.”

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