ULI New York Blog

YLG Interview Series: Dr. Peter Linneman

Reported by Joe Stampone, ULI New York Young Leaders Group

As part of the ULI Young Leaders Group Interview Series, I had the opportunity to speak with Dr. Peter Linneman. Dr. Linneman, whose bio is too long to list, is widely recognized as a leading strategic thinker and investor, and has been cited as one of the 25 Most Influential People in Real Estate by Realtor Magazine, and one of the 100 Most Powerful People in New York Real Estate by the New York Observer. In addition to his professional success, he’s accomplished in the academic space. He was a member of Wharton’s faculty for 32 years, founding Wharton’s Real Estate Department and the Zell-Lurie Real Estate Center.

Dr. Linneman is a highly sought-after speaker. I’ve heard him a few times and he has a great ability to clearly explain complicated economic situations and their effect on real estate markets.

The interview was focused towards young professionals with a slant towards career advice. Dr. Linneman’s career and experience as a professor uniquely position him to guide the next generation of real estate professionals.

Everything that comes out of his mouth is ‘tweet’ worthy so much of the answers below are verbatim.

In an incredibly competitive marketplace, how can young people differentiate themselves? What core skills should they focus on and how can they develop the right experience and foundation? 

“Read everything, and not just Wikipedia. In the old days, one would not think you were educated because you had an encyclopedic knowledge as an adult. Read the Economist, read the Wall Street Journal, read the Financial Times, read trade magazines, and not just about real estate. Reading in this sense has become a bit of a lost art among young people. If you find everything by Googling and Wikipedia, you don’t get breadth and you don’t get depth. What differentiates is someone who actually has breadth of knowledge and understanding of what the issues are, as well as depth.

What you tend to have is a generation that is neither broad nor deep because they believe they can Google it and get it when they need it. There is something that every generation has that the previous didn’t have, but everything comes with some cost. The current generation knows how to access information but they don’t know how to acquire or own information.

What’s the most profound change you have seen in the commercial real estate business since you started working in the field?

Institutionalization, without a doubt. It used to be that if you went to any market, the best buildings were owned generally by Bob Smith and the Jones family and so forth. The best buildings today are owned by either REITs, pension funds, separate account managers, open-end core funds, or sovereign funds.  There’s been a dramatic change in the nature of who the employers are and a dramatic change in demands. Instead of answering to the old man, so to speak, you’re now having to answer in a very different way to an institutional set of reporting lines. And with that has come demands for information, demands for reporting, and demands for transparency about how the market is working in a way that…and this may sound silly, but in the same way that you find it almost impossible to find out what rents are in Shanghai and who owns buildings and so forth, that’s how it used to be 25-30 years ago in almost all markets.

What it’s meant is that entrance is easier, because the vacancy data is known, the cap rate transaction prices are known, and the rents are known. Whereas none of that used to be known; who’s making loans at what rates used to be unknown. So it’s really changed in that it makes entry easier, not easy, and it makes the demands of professionalism much higher.

It’s become a professionalized business.

What are your thoughts on recent grads working for a big company versus a small company?

The disadvantage of working for a large institution, is that it’s a large institution with all the layers, the inertia, and the non-decision making. There’s a reason big institutions have that – namely, none of us built it and none of us have the right to destroy it. It was built by generations and built by lots of thousands of people. Take a pension fund for example, the pension fund may have $100B, but it was acquired by a bunch of people over a lot of years. So it should be hard to change things at a big institution. That’s the biggest negative, that it should be hard to change things at a big institution because it’s not yours.

The biggest positive is that it demands professionalism, it demands process, it demands attention to detail. I’ll give you a trivial example. You should do an annual budget on a $30M project. You’d be amazed how many small companies don’t, because it takes time. The big institution trains you on the professionalism; make a budget, report variances, revise the budget etc.

The small firm is great in that you see decisions made – in all of their good and bad.

The negative is that there’s really no where you can go. A lot of small businesses don’t want to particularly grow a whole lot. Most of the small firms are looking to grow, but they’re not looking to grow by billions, they’re looking to grown by 4%. One of the common problems for a young person in a small firm is where do I go within the firm, I’ve done everything they’ve asked, I’ve progressed really nicely, but there’s only one boss and there’s 3,7, or 9 other people and none of them are planning to die so then you have to start to look outward. And that’s a disadvantage, you could do everything right, you can be with people you like and respect, and yet you may still have to leave.

What are your thoughts on American-born and American-educated moving abroad to work in emerging markets such as South America and Asia?

There’s two different answers I give: If you’re doing it after an undergraduate degree, you always have the get out of jail free card in that you always have the opportunity to go back and get an MBA or a Masters in real estate. This makes it easy to transition back and the business schools will generally give you more credit than you deserve for the experience.

If you’re further along in your career, and let’s just say you’re an MBA, I generally don’t recommend it to people unless they’re committed to learning the language or already know the language (with the exception of England/Australia) because the day to day is always going to be in the language of the country and if you don’t speak that language, you’ll find it hard to be a real insider and these are non-transparent markets. Being an insider becomes very important.

Also, don’t go unless you plan on staying 20 years. It’s like, don’t get married unless you intend to stay married, even though you may not end up staying married. If you’re a post-MBA, don’t go abroad unless that’s where you plan your future to be because what you’re going to build up is contacts and skills and context that is useful almost uniquely to that market.  You’re going to want to come back in 4 years and be treated like someone that is 4 years out, but most of those skills you have are not very transportable.

What’s your favorite building and why?

The Short Hills Mall. The reason is that it’s an extraordinarily successful retail project, that’s in a great neighborhood and has tremendous physical constraints associated with it as a site that make it very difficult. Taubman Companies figured out how to handle the constraints it was given and exploit the characteristics it was given as well as any property I can think of.

In the end, what real estate is really about is; how do I make the most of what I’ve got and hopefully I’m in a good place to start with. And in that sense, that project does it as well as any I can think of. It’s like Michael Jordan, he’s very skilled, but he also got everything out of his skills.

What’s one piece of advice you’d give to a young real estate professional just beginning his career?

Get rich slow. Get rich slow and have a fabulous career meeting fabulous people and becoming friends with fabulous people.  Get rich slow is underrated. Most things that happen in a hurry, think the Brittany Spears of the world, come with many issues. What a career is about is having a fabulous experience and a fabulous life and you can do that in real estate, but your goal has to be to get rich over a career, not to get rich by Tuesday. Sam Zell had a great line, a kid came up to him after a speech and said I want to be just like you in 5 years. Sam, both seriously and jokingly said, why do you get to be me in 5 years, it took me 40.

View your life as a life and not as tomorrow.

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