People.cn Interview with CRE Director Albert Saiz

People.cn Interview with Albert Saiz, Director, MIT Center for Real Estate

1. What was the initial purpose of MIT in establishing this MSRED degree? 

Prof. Albert Saiz: Historically, many individuals who work in real estate have acquired their skills on the job.  However, as the business of real estate has become more complex in structure and more international in scope, the industry has recognized the need for a more sophisticated and specialized education. Meanwhile, the US real estate industry was experiencing a deepening, from a build-and-sell-quick paradigm to an increased focus on quality and the development of  secondary markets: investments, property management, investments management, leasing, secondary transactions, infill re-development, renovations on the existing stock . This shift in the real estate industry also required sophisticated knowledge and education. In 1983 an MIT alum, Charles “Hank” Spaulding established the Center for Real Estate at MIT. Spaulding was a prominent real estate developer himself and he had the vision to improve the quality of the built environment and to promote a more informed professional practice within the global real estate industry.  MIT’s one year MSRED program, the first in the country, educates students in the full range of skills required of real estate professionals, from finance, construction, human capital to urban planning, physical design, law, contracts, asset management, micro economics, and so on.  

2. In your mission, you mentioned “socially responsible real estate development and investment”, can you elaborate on this? 

Prof. Albert Saiz: In 2015, Samuel Tak Lee Real Estate Entrepreneurship Lab was established thanks to a generous gift from alumnus Mr. Samuel Tak Lee. The mission of the lab is to examine urbanization and real estate development issues worldwide, with a particular focus on China. With the generous support of the Samuel Tak Lee fellowship, we wish to create a new generation of socially-responsible entrepreneurs and academics within the field of real estate. Good education is about creating values. Socially-responsible real estate should create a sense of place and generate positive environmental and social impacts on our community. For the real estate industry to maintain its responsible leadership in the global community, it must encourage a culture of sustainability and innovation that meets the challenges of an increasingly interconnected world. 

3. So far, China does not have any specialized master degree on Real Estate. How do you think your discipline offerings can have an impact on the real estate industry in China? 

Prof. Albert Saiz: education is critical for the future of the industry.  Our graduates will be future decision makers in the real estate field. Eventually better education leads to better decisions that create value. Our goal is to educate future industry leaders, preparing them with tools to develop better real estate worldwide and improve on the management, investment, and transactions of existing buildings. In keeping with the MIT tradition, we bring to the industry the very best practical experience, coupled with interdisciplinary studies in design, science, finance and engineering. The students will get involved in all aspects of land, zoning, development product design, traffic analysis, marketing, leasing, sales, phasing of development projects, leasing management, financial calculations, mortgages, banking, private equity, the impact of macro economic conditions on the real estate business, and so on. We offer an A to Z holistic approach in both our research and educational practices.  

MIT is uniquely positioned to help the industry increase its efficiency, prosperity, and social responsibility. MIT applies its excellence in technology, knowledge-transfer, and global reach to the real estate industry, developing innovations to help practitioners build responsibly and profitably. We have an extensive global alumni network of over 1000 people, who work for premier real estate organizations in the US and abroad. This extensive alumni network conforms a tight-knit community. Like a snowball, this network keeps rolling and connects us to multiple global resources, and makes the leadership impact in the real estate industry. 

4. You mention the MSRED program has a global outlook. How do you see the trends in global asset allocation? 

Prof. Albert Saiz: Across the world, changing trends, demographics, and investment strategies are redefining the real estate landscape. The US market has become a refuge from global market uncertainty. Its returns may not be the best, but it’s a safer place. Europe is also a good choice to buy assets, due to the weakness of the euro. The globalization trend is unavoidable and needs strategic thinking and specialized study. In our program, we offer courses like International Housing Economics and Finance, which aims to develop the skills required to successfully build a global residential real estate portfolio. In our summer Professional Education class, Global Real Estate Markets, we also analyze the international returns and co-variations in asset and asset-backed financial derivatives, and develop portfolio-optimizing strategies. We also cover the universe of global Real Estate Investment Trusts, and Mortgage Backed Security markets. We provide the skills needed to distinguish between short-term speculative fluctuations in real estate, and actual or expected changes in asset valuation that are driven by fundamentals. We analyze the micro-economic determinants of real estate value and rental yields and current global trends in real estate demand and valuation. This leads us to develop a model of real estate price fundamentals and fluctuations that is based on recent research. Meanwhile, we review the strategies taken by successful global operators in order to minimize currency, credit, and operational risks. 

5. In a newly-developed-country market, is it appropriate to continue big scale urban development projects? 

Prof. Albert Saiz: Every country’s market is very different. However, we see a classic pattern of development in markets that have exeperienced extremely rapid economic growth over short periods like Japan, Korea, Spain in the 50s, 60s and 70s. In these countries there tended to be a shift from development quantity to quality. With the maturation of the market, we usually see a transition from large-scale master-planned developments to smaller scale and infill types of development, as well as a shift from infrastructure-centered to more people-centered development.  

6.       China’s real estate marketing is experiencing severe polarization: first and second tier city have sky-rocketing high housing prices, while third and fourth tier city have huge stocks to digest. How can you explain this phenomenon? Is there anything that China can learn from the US real estate development experience and lessons? 

Prof. Albert Saiz: this phenomenon has been seen in US, UK, Ireland, Mexico, and Spain earlier, when housing became a speculative asset. In all these countries, we saw signs of an irrational market. In my opinion, managing speculation first is the key. Second, what we learned from the global experience is that it is very important to have a well-developed rental market. Without a good rental market, people are expected to buy housing at a very young age, using parents’ savings. With a healthy rental housing market, people make rational choices about their housing, and become more responsible for their choices. Also, rental markets provide a validation to good real estate investment strategies because people should stop investing in assets that do not show clear immediate rental potential (e.g. communities that are far away from jobs or do not posses other attractions to current workers). On the other hand, if people speculate, it’s very hard for them to make sound judgments about the quality of the communities that are built. We need to connect investments to the actual practical value of the real estate use. A pure investment motivation, where the immediate use of the buildings is not a primary concern, will lead to overbuilding, vacancies, and more dysfunctional communities.