FEATURE: Making tomorrow’s leaders

For most senior partners and principals, many years have elapsed since they studied for a Master’s degree. That makes it doubly necessary to stay informed about changes that have taken place affecting MBA and MSc graduates at the universities and business schools, for these are the junior analysts and associates their firm could be hiring.

To that end, PERE spent the summer talking to both graduates and course directors of MBA and MSc programs to understand the graduate picture in Europe – and a number of features of the academic has landscape emerged.

Perhaps the biggest and most important change to have taken place is in the relative attractiveness of the private equity real estate industry in the wake of the global financial crisis compared to careers in other parts of the real estate industry. What seems to have taken place is a perceptible shift in that graduates of Masters in Real Estate courses – at least in Europe – do not necessarily prioritize investment banks or top consulting firms over private equity anymore. If they do, a career at an investment bank could be seen as a stepping stone to private equity and not the be-all and end-all.

Moritz Stegers, a student at EBS University of Business and Law in Wiesbaden, Germany – home to one of the world’s highest-ranked Masters in Real Estate Management courses – summarizes how he sees private equity real estate. “Personally, I think that private equity real estate is the most interesting discipline within the real estate industry,” he says. “The concept of opportunity identification, a high-profile challenging working environment and high return expectations attracts those graduates that alternatively would join investment banks or top consulting firms.”

Still, that doesn’t mean that all graduates universally have fallen in love with private equity as a specialist practice area to enter. Far from it. Karl-Sebastian Hauff, who attends the same course as Stegers, points out his reservations. “I think one can learn a lot in a short time while working in the industry, but I don't know yet if the trade-off in work-life balance is worth it,” he says. “The development industry could be more interesting because the returns also are high but you create real property value and this could be more satisfying and more fun.”

Professor Nico Rottke, who teaches the MSc Real Estate program at EBS, certainly has noted a change that has taken place in terms of the destination of his graduates. It has to do with what he calls an ‘image problem’.

“Following on from the financial crisis, people got more conservative on the areas of investment banking and consulting – the image got damaged,” Rottke says. “Five years ago, 80 percent of our graduates went to M&A or consulting, but this dropped significantly. On the other hand, the financial crisis has shown how important real estate is, so we see greater demand (for the course) than we had before.”

Moral hazard 

General partners reading this would do well to heed the perception of the private equity industry among current graduates. These potential hires and indeed leaders of tomorrow are very well aware of the shortfalls of the economic model of private equity real estate firms, as well as the upside to working in such an arena.  

Indeed, EBS student Hauff makes an excellent job of summarizing both the mission of higher returning funds and the potential pitfalls in one go. “From my point of view, private equity has the potential to make markets more efficient by freeing up capital that was hidden before in badly managed properties or by enhancing the financial side of distressed assets and nonperforming loans,” he explains. “Due to the fact that private equity real estate is focused on high internal rates of return, the investment horizon is very short and the risk is high. As a fund manager, the remuneration can be exorbitant, depending on the waterfall system and the contractual agreements. As in any other fund, there also is a high potential for moral hazard, such as when the requested returns are achieved quicker than agreed with the investor and the fund managers does nothing for the remainder of the time while collecting management fees.”

This is valuable insight into how graduates attending one of the best MSc Real Estate courses in Europe and indeed the world are thinking about private equity real estate. It could even have important implications for the industry – perhaps positive ones because the role that universities are playing in teaching the moralities of real estate investing is shaping those that enter into the profession today.

In days gone by, ‘moral hazard’ would perhaps have figured lowly on a course that a real estate graduate would attend. Obviously, times have changed.

Professor Rottke recalls a conversation that occurred when his university was teaching a real estate investment banking certificate. “Some said to me: ‘By the way, what you are doing here is building and teaching how to use weapons!’ What the person meant was that, if we teach the students how to structurally set up a CDO, do they know what impact the failure of a CDO will have on the overall economy?”

In the case of EBS and other universities, such as the University of St Andrews in Scotland, teaching ethics has been around a long time. Already, more than 10 years ago, EBS hired two philosophy professors from Cambridge and Oxford universities to teach students how to behave ethically within a real estate investment setting.

Since the global financial crisis, however, the whole of academia has been confronted with the question of ethics. They have had to ask: What responsibility do we have to ensure that what universities teach is not abused in the industry later on?

In the aftermath of the financial crisis, some business schools introduced ethics as a standalone unit, but it was not necessarily integrated into courses. Rottke calls this “a little bit of a lie” by the business schools. Indeed, some were heavily criticized, he says, for teaching a system that was unable to recognize that human beings drive a system that is not fully transparent and does not always act rationally.

A choice of routes 

Assuming private equity real estate as a career does possess allure for some graduates, moral hazard and work-life balance notwithstanding, is the choice of courses plentiful enough for students that wish to specialize in it? Indeed, do students actually want to specialize?  

The two questions are linked because, if students do not want to specialize to that extent, it follows that universities would not want to offer such courses.  In fact, Europe does not offer a Masters in private equity real estate. Instead, those that wish to go into private equity real estate have other routes.

One option is to attend an MBA program that has introduced a real estate module or elective and potentially pick up a job in the industry after that. This is a system that already has grown up in the US, but it is only just beginning in Europe. Examples of a business school with a relatively new real estate elective would be the Saïd Business School, which is part of Oxford University. The course is taught by visiting professor Andrew Baum, who has held various positions in the private equity real estate industry, including current chairman of the investment committee for CBRE Global Investors’ multi-manager team.  

If a general Masters with a real estate component is not to a graduate’s liking, they could alternatively opt for an MSc in Real Estate Finance, which is as close as one can get to specializing in private equity real estate. The London School of Economics (LSE) offers such a course, and the university seems to be on the résumés of a number of new entrants to the private equity real estate industry. The course, by the way, is ranked number 7 in the world on bestmasters.com for real estate management Masters degrees.

Paul Nearchou gained an MSc in Real Estate Economics and Finance at LSE between 2010 and 2011. Following his year in the program, he joined Goldman Sachs' corporate real estate team but, for the past two years, has worked for London-based private equity real estate firm Patron Capital as an investment analyst.

Nearchou says he attended the LSE course not because he already had decided to enter into private equity real estate necessarily, rather as a method of getting the real estate experience and knowledge with a finance element that is more tailored to investment banking / private equity roles.

For Nearchou, there were really only two other options outside of LSE – the others being Cambridge University’s MPhil in Real Estate Finance or City University Cass Business School’s MSc in Real Estate. “I chose LSE as it was based in London, and I thought it would be more finance-focused and would open more doors,” he says.

Most of Nearchou’s fellow students went into some sort of real estate role, be it private equity, corporate finance, banking or the traditional brokerage firms, such as DTZ and CBRE. Less went into surveying jobs, even though the course is accredited by the Royal Institution of Chartered Surveyors. He also notes that there was a “big element” of Asian students, who returned to China.

Summarizing LSE and its course, Nearchou says: “I believe the nature of LSE tailors you more for the analytical side of real estate.  I feel it gave me a good insight into real estate, with a focus primarily on the UK but also touching on Europe, the US and Asia.”

Few good programs 

Henley Business School, which merged with the University of Reading a few years ago and whose MSc in Real Estate course is ranked 36 in the world by bestmasters.com, is another of the institutions that offer a specialist MSc in Real Estate Finance. Professor Simon Stevenson, who runs the course, notes that the content of the course has expanded considerably, taking into account the global financial crisis. It now includes analysis of mortgage-backed securities and REITs. There is another difference too.

“For everyone – not just at Reading – real estate education has tended to assume one is dealing with an all equity-financed pension plan that is very conservative, and all of our examples have tended to be like that,” Stevenson says. “That is where we have had to change. There are now more geared investors, aggressive investors and global investors, so we have changed even the examples we provide as we encounter different types of investors in the market.”

Though the courses have changed, there certainly are not many MSc courses in real estate finance to choose from. Not even the highest-ranked business school in Europe for real estate management offers it.  

At Italy’s SDA Bocconi School of Management and Politechnico di Milano, which is ranked number 2 by bestmasters.com, real estate finance is treated as just one of 12 core courses in phase two of the one-year Masters in Real Estate. Then again, according to the business school’s Professor Andrea Ciaramella who teaches the course, its graduates tend to get offered jobs in Italy so it isn’t targeted to private equity. She estimates that probably just 15 percent of its students enter into private equity real estate straight away.

This should not come as a surprise. As Professor Rottke points out, private equity real estate is a very specialized field. “One has to keep in mind that education needs to be general. If you specialize in private equity real estate, that is a specialization of a specialization of a specialization. The generalization would be studying business management. If you look at what people study that want to go on to private equity real estate, they either have an economics or business management background and typically add a Masters degree in finance before specializing in the real estate industry.”

EBS, ranked number 3 in the world on bestmasters.com, is unusual because it does have quite a focus on private equity real estate. That is because Professor Rottke has a special interest in the area, having written his PhD thesis on the subject. “We have the typical real estate investment and finance curriculum, which focuses content-wise on private equity real estate because of my interest,” he says. “It helps that the school is only 30 kilometres away from Frankfurt, Germany’s financial capital.”

So Europe’s universities have responded to the market, especially the global financial crisis but there are no specific Masters in private equity real estate. Which prompts the key question, is the system clear for students that do want to enter into the industry? 

One student tells PERE that the answer is “not necessarily,” and this is perhaps where private equity real estate firms as recruiters need to improve. “I found it difficult to understand what private equity real estate recruiters are looking for: real estate market specialists or pure finance genius, or both. In my opinion, I believe private equity real estate is a second career step after acquiring a strong expert basis and, most important, a useful network.”


Business schools and courses  

Some business schools and universities seem to crop up time and again on the resumes of those that have recently taken up positions at private equity real estate firms 

London School of Economics, London 

MSc Finance and Private Equity, MSc Real Estate Economics and Finance

Example students: Paul Nearchou – investment analyst at Patron Capital, formerly corporate real estate at Goldman Sachs; studied 2010 – 2011

Kilian Pender – associate corporate credit and real estate at Centerbridge Partners from September 2013, formerly real estate analyst at Blackstone; studied 2007 – 2008

Steffen Kluners, private equity real estate at PIMCO from June, previously an analyst at The Blackstone Group; studied 2010 – 2011


HEC School of Management, Paris 

MSc in Management, International Finance

Example students: Mohamed Ali Benhayoune, investment manager associate at Round Hill Capital since 2012; studied 2006 – 2010

Etienne Casara, analyst of distressed debt at Forum Partners, formerly an analyst of real estate M&A at Morgan Stanley; studied 2005 – 2009


City University Cass Business School, London  

MSc Real Estate

Example students: Veronica Baldi, associate analyst at Moor Park Capital Partners since November 2013; studied 2010-2011

Nicholas Haig, analyst at CBRE Global Multi Manager since April 2013, formerly a private equity analyst at Probitas Partners; studied 2011 – 2012


EBS Business School, Wiesbaden, Germany

MSc in Real Estate

Example students: David Germer, investment associate at Franklin Templeton Real Estate Advisors, formerly analyst at LaSalle and an analyst at JER Robert and Morgan Stanley; studied 2006 – 2009.

Robert Karde, investment manager at Captiva Capital Management, previously with Sal. Oppenheim Real Estate Investment Banking; studied 2007-2008

Nicolaus Bitter, real estate investing analyst at Morgan Stanley; studied 2012-2014


ESCP Europe, Paris

Masters in European business, Masters in Finance

Example students: Ilya Nikitin, vice president of real estate private equity at Morgan Stanley since June 2010; studied 2006 – 2007

Vincent Kerboull, real estate team at Blackstone since January 2013, formerly intern analyst M&A at Lazard. Studied 2011 – 2012


ESSEC Business School, Cergy-Pontoise, France

MBA Real Estate / Finance

Example students: Mai-Lan Fitoussi, European real estate team at Kohlberg Kravis Roberts since October 2013, previously an associate within the opportunistic team at Pramerica Real Estate Investors and an analyst at LaSalle Investment Management; studied 2005 – 2009

Source: LinkedIn