Fall 2008: Real Estate

Many of us have heard the biblical parable about the wise and foolish builders, who built houses on rock and sand, respectively. Without a sturdy foundation, the foolish builder’s house on sand is washed away while the wise builder’s house on rock stands the test of time.

Keeping within the real estate theme of our issue, this parable can relate to the quality of education and programs we hope to provide at Baylor’s Hankamer School of Business. We equip our graduates with the business tools necessary to create a stable foundation upon which to build lasting and successful careers across all industries, including real estate.

In this issue of the Baylor Business Review, we examine the big picture of trends and diverse opportunities the real estate industry offers. You will be introduced to many of our alumni who specialize in everything from construction, consulting and appraisal, to commercial and residential real estate. They are building legacies not only nationally, but also on a global scale while implementing business practices first learned at Hankamer.

Thanks to a generous donation from alumnus Gary Keller, the Hankamer School of Business has a new addition: The Keller Center for Residential Real Estate Sales and Marketing. The Center is already producing research to give us further insight into real estate trends and buyer-seller relationships.

We also feature a photo spread of our Homecoming activities, which is a time to reflect on past experiences at Baylor and reconnect with friends. We hope you can be a part of this exciting upcoming event.

Terry S. Maness
Dean, Hankamer School of Business

 

 

Baylor Business Review, Fall 2008

by Michele Lerner

National real estate trends have riveted consumers for the past two years, yet the mantra “location, location, location” still holds true. Home prices and sales rates can be so volatile even within local markets that wide variances can occur even with the same neighborhood. But, on a national scale the subprime mortgage meltdown morphed into tumbling home values, rising foreclosures, slowing sales, and a credit crunch extending into financial transactions unrelated to residential real estate. The commercial real estate market, while impacted by the changing economic climate, has managed to avoid the implosion experienced in the residential sector.

Government to the Rescue

Government initiatives meant to stimulate the housing market and revitalize the economy are anticipated to have a positive effect on real estate markets, but opinions vary as to when the real estate market will improve. Real estate experts agree that areas that have been hit hardest by foreclosures and devalued homes will take the longest to recover.

The Housing and Recovery Act of 2008, signed into law July 30, 2008 by President Bush, includes a variety of provisions meant to move residential real estate trends back on track. A key element which home builders and realtors think will stimulate the housing market is the homebuyer tax credit of up to $7,500 which will be given to first-time homebuyers. The tax credit can be used for homes purchased between April 9, 2008 and July 1, 2009.

Lawrence Yun, chief economist for the National Association of Realtors (NAR) said in his “Economist’s Commentary” of July 28, 2008, “I am excited about the tax credit because it will have the biggest impact in getting the housing market moving again and in lessening the foreclosure pressure.”

National Association of Home Builders’ (NAHB) President Sandy Dunn, a home builder from Point Pleasant, W. Va., said in a statement, “The tax credit is the best stimulative measure. It will increase housing demand, get home buyers back into the marketplace and fight falling home prices, which threaten the economy as a whole.”

Other elements of the housing bill include modernization of the Federal Housing Authority (FHA) by giving the organization additional authority to insure mortgages and refinance loans for homeowners facing foreclosure. A low-income housing tax credit will expand affordable rental housing and a mortgage revenue bond program will help states issue additional bonds, which can aid borrowers attempting to refinance their home loans. Another section of the legislation focuses on government-sponsored enterprise (GSE) reorganization, which reforms the regulation of Fannie Mae and Freddie Mac and permanently increases the conforming loan limit which will help buyers in markets with expensive housing.

Economic Aftermath

Economists, many of whom predicted a housing bubble primed to burst, carefully study the factors which created the current real estate climate.

“The main impetus, what got us to where we are today, was easy credit,” said Bernard Markstein, a senior economist and director of Economic Forecasting for the National Association of Home Builders (NAHB). “Lower interest rates and easier credit allowed more buyers into the market, which started the process of bidding up home prices. This worked as a feedback loop: as home prices rose, lenders saw the loans as less risky. They thought that even if the loans went belly-up, they would walk away with a profit and no one would be hurt.”

Markstein said that default rates fell for years as real estate prices rose, which encouraged lenders to make even riskier loans. At the same time, Wall Street was buying mortgages and selling securities backed by pools of mortgages, all predicated on rising home prices. “As prices rose and it was easy to get a loan, people became fearful that if they did not buy something, they would be priced out of the real estate market forever,” Markstein said. “This led people to take risks and to overbid on homes. Investors jumped in, thinking they would get rich by buying and selling houses.”

Markstein said that rising interest rates at the end of 2005 and concern among buyers that prices for homes were getting too high contributed to the crash of the residential real estate market. “As soon as prices stopped rising and the market turned south, people started canceling contracts on new homes,” Markstein said. “The market went almost immediately from having not enough supply to having an oversupply of homes. The downward spiral continued as buyers dropped out of the market, and then more and more people found themselves underwater, owing more on their loan than their house was worth.”

Markstein said there are pockets of concentration in which the real estate market fell hardest, such as Phoenix, Las Vegas, South Florida, California and suburban areas around major cities such as Washington, D.C. and New York City, all of which were overbuilt during the housing boom. He said Michigan and some other areas of the upper Midwest such as Ohio, Indiana and Illinois have been hit hard because of economic distress, particularly in the auto industry. A third area which has been hurt is the second home market, primarily in coastal areas such as Florida, North Carolina and South Carolina.

“As home prices dropped, the distress spread into the financial markets, and, in September 2006, the subprime loan market meltdown began,” said Markstein. “The problems in the financial markets then spread back into the mortgage market. Credit used to be too easy to obtain, but now it may be too hard. The result is that now sometimes people cannot obtain the mortgage they want, and they need a larger down payment, which also slows home buying.”

Markstein predicts home sales to stabilize by the end of 2008 and expects housing starts to rise in early 2009, after more of the foreclosures have been purchased and supply lessens. “Each local market is different,” said Markstein. “In some parts of the country home prices have stayed flat or are even rising. Nationally, I expect prices to stop falling by the middle of 2009.”

Yun, in an online market forecast in July 2008, said the residential real estate market is still a buyer’s market, and he anticipates a recovery in home sales during the second half of 2008. He points out that location matters more than ever in the current market. “Look at the pending home sales index for the West [NAR’s July Pending Home Sales Index based on contracts signed in May],” wrote Yun. “While it’s true the index slipped 1.3 percent to 97.5 in May in that region, it was 2.0 percent higher than it was in May of 2007. Indeed, some markets have seen a doubling in home sales from a year ago, while others are seeing contract signings cut in half. For instance, double-digit pending sales gains in May from a year ago were noted in Colorado Springs, Colo.; Sacramento, Calif.; and Spartanburg, S.C. In addition, price conditions vary tremendously, even within a locality, depending upon a neighborhood’s exposure to subprime loans.”

The Mortgage Bankers Association (MBA) in a Financial Commentary dated July 10, 2008, projects total existing home sales for 2008 to decline approximately 14 percent from 2007 sales to 4.88 million units. Existing home sales are anticipated to increase by 7 percent in both 2009 and 2010. The new residential construction market has been hit harder than the existing home market. New home sales are predicted by the MBA to decline about 35 percent from 2007 to 508,000 units by the end of 2008. The MBA expects new home sales to increase about six percent in 2009 and about 19 percent in 2010.

Yun points out, “Current real estate market conditions are positive for most buyers: still-attractive interest rates, a large inventory of homes available for sale, and many sellers willing to negotiate their prices – sometimes significantly.”

Markstein anticipates that the Housing Stimulus Bill will break what he terms the “cycle of fear,” which stops many potential buyers from purchasing a home. “Consumers need to think about not just falling home prices, but also rising interest rates,” said Markstein. “Mortgage interest rates have risen one-half percent since April. In some cases, this means that someone who bought a home in April would have a lower monthly payment than if they bought the same home in June for a slightly lower price.”

Yun states that based on current indicators, the 30-year fixed-rate mortgage is forecast to rise gradually to 6.5 percent by the end of 2008 and then hold at that level for most of 2009.

Ultimately, Markstein said, everyone should think about why they want to buy a home. “A home should be a true, long-term investment in a family and a community,” said Markstein. “Historically, home values rise as long as you stay in the property for five to seven years. In the meantime, you have the stability of living in the same place and control over your own property.”

The PNC Economic Outlook, a twice-yearly national survey of small and middle-market business owners, found that business owners surveyed in April 2008 shared a concern about the possibility of the U.S. heading into a recession that could impact their business. Both the credit squeeze and the housing slump are affecting the outlook of these owners, according to the survey. Nearly half (48 percent) expect housing prices in their area to decrease over the next six to 12 months, compared with 43 percent expecting declining prices during the fall 2007 survey.

Commercial Real Estate Repercussions

Media attention has primarily focused on the residential real estate market, but the effects of the credit crunch engendered by drooping home values and rising foreclosures are beginning to be felt in the commercial real estate market. According to the NAR Commercial Real Estate Outlook in June 2008, commercial real estate vacancies are up slightly and investment has dropped sharply. Yun said economic weakness is impacting commercial real estate.

“Although the supply-demand fundamentals are broadly favorable in most commercial real estate markets, vacancy rates are rising modestly and rent gains are slowing,” said Yun in an online statement. “Slow economic growth is lowering demand for commercial space, mostly in the office and industrial sectors. Despite the slowdown, commercial real estate is in much better shape compared to conditions during the 2001 slowdown.”

Henry Chamberlain, Building Owners and Managers Association (BOMA) president and COO commented during his annual “State of the Industry” address at the 2008 BOMA International Convention that even though vacancy rates are beginning to creep up, downtown office properties continue to thrive. Rental rates have slowed somewhat overall, but they continue to rise in urban office buildings. Total income in downtown office buildings increased by 5 percent, while rental rates increased by 4.8 percent, according to BOMA’s 2008 Experience Exchange Report. However, total net absorption for 2007 was 53.4 million square feet, down from 79.8 million in 2006, according to Divided Capital Research.

Green Initiatives

A major trend in commercial real estate, now extending into residential buildings, is “green building,” a term which refers to a variety of practices including the installation of energy efficient products, using renewable resources, conserving water and recycling construction materials. The LEED (Leadership in Energy and Environmental Design) certification program, developed by the U.S. Green Building Council (USGBC), now involves over 3.6 billion square feet of commercial building space which have achieved or are in the process of achieving various levels of certification. LEED for homes was launched in December 2007.

“The relative stability of utilities expenses in office buildings, according to the 2008 Experience Exchange Report, despite the rise in energy costs, tells us that low-cost energy efficiency strategies are working,” said Chamberlain. “In a survey by BOMA, USGBC and Real Estate Media, 82 percent of property professionals said greening their portfolios was a priority. Nearly two-thirds of the survey respondents have allocated funds to green initiatives.”

According to the Green Building Alliance, the green building products market is projected to be worth $30 to $40 billion annually by 2010. McGraw Hill Construction’s Greening of Corporate America Smart Market Report in 2007 predicts that by 2009, 80 percent of corporate America is expected to be engaged in green efforts at least 16 percent of the time, and 20 percent will be engaged in green 60 percent of the time.

Global Real Estate Implications

Financial factors may have the strongest immediate influence on both commercial and residential real estate trends, but demographics, both nationally and globally, play an important role in the long-term real estate market. The Urban Land Institute (ULI) recently published Global Demographics 2008: Shaping Real Estate’s Future, written by M. Leanne Lachman, president of Lachman Associates, LLC in New York City and Deborah L. Brett of Deborah L. Brett & Associates in Plainsboro, N.J., a study which looks at the real estate market implications of population patterns, aging, migration, urbanization and tourism.

Perhaps the most significant demographic trend worldwide is aging. The Global Demographics report said that by 2030, one in eight of the earth’s population will be over 65. The most dramatic growth, expected to drive demand for assisted living and nursing homes, is among seniors over 80 years of age, anticipated to increase from 80 million in 2005 to 197 million in 2030. In the United States, the aging baby boomers and the “coming of age” of echo boomers will lead to an increase in single-person households, driving demand for more multifamily housing in retirement and workforce developments. Immigration also accounts for rising demand for housing. The report said that half of U.S. population growth by 2030 will be the result of immigrants, their children or grandchildren.

Globally, demand for real estate development and infrastructure investments will be highest in the developing regions of Asia, Africa and the Middle East, which will experience the fastest population growth. “Demand for modern real estate is overwhelming in these rapidly emerging markets,” the report said. The Global Demographics report was sponsored in part by Deloitte LLP.

“Over the next 20 years, demographic mega trends, and their variations by continent, present the real estate industry with tremendous opportunity to not only grow its business, but to better serve the people real estate is designed for,” said David Jacobstein, senior advisor to Deloitte’s real estate practice. “Mature economies, especially growing ones, offer attractive investment opportunities, but emerging markets require vast quantities of residential, retail, office and hotel properties to support their burgeoning populations.”

As an example, commercial and residential real estate investment is on the rise in both Mexico and Brazil, two countries which are attractive to U.S. investors because of their current political stability and the scale of their economies.

“Mexico has 110 million people and Brazil has 200 million people, but beyond just the numbers is the important fact that these are youthful populations,” said Gary Garrabrant, CEO of Equity International. “The larger percentage of youthful people compared with developed countries means that both consumerism and the growth of a middle class are expected to accelerate in the coming years.”

In contrast to the oversupply of housing in many areas of the United States, Mexico currently has a shortfall of four to six million homes. Brazil has a shortfall of six to eight million homes. Builders in these countries are growing their businesses at a rate of 100 percent per year, with the majority of homes sold before they are built. Expectations of a slowly improving North American residential and commercial real estate market in the coming years may not match the excitement of working in emerging markets, but economists do anticipate some welcome stability in the U.S. market.

To read the author’s blog entries on real estate trends, visit:

www.examiner.com/x-612-Real-Estate-Examiner

 

 

Baylor Business Review, Fall 2008

by Kristin Todd

Over the past year, the real estate industry has been making headlines and become a topic of discussion among most Americans-specifically, the housing market. After all, when most people think about real estate, they immediately picture a house. However, the real estate industry covers a vast spectrum of interdependent sectors. These featured alumni each discovered a niche within this multi-faceted industry that was signature to his or her skill set. Whether they are involved with construction, consulting, commercial and residential real estate, appraisal or investments, these alumni all have a true affinity for the industry.

Mark and Mallory Petersen

Van Martin

Earl Patrick

Gerald Haddock

Allison Wilson

Larry Heard

Karla Adam Trusler

Joe Longbotham

David Stanford

 

 

Baylor Business Review, Fall 2008

Property Acquisition and Economic Development. What is the cost of progress?

The cost of progress made national headlines in 2005 with the case of Kelo vs. City of New London, in which the U.S. Supreme Court granted local governments the authority to seize private property for private economic development for “public use,” as interpreted in the Takings Clause of the Fifth Amendment. The issue of property acquisition resurfaces as we examine the proposed development of the Trans-Texas Corridor and its potential positive and negative impacts on property owners in the path of this development.

View: Texas Department of Transportation

The Trans-Texas Corridor (TTC) program is a proposed multi-use transportation system that will incorporate existing and new highways, railways and utility right-of-ways. The goal of the TTC program is to solve current mobility problems while anticipating and planning solutions to our long term transportation needs.

Specific routes for TTC projects will be determined where unique regional needs indicate they are needed. However, upgrading and making the best use of existing corridors and current infrastructure is certainly the highest priority.

As envisioned, individual TTC facilities could ultimately include one or more of the following elements:

• separate lanes for passenger vehicles
• dedicated large truck lanes
• freight railways
• passenger railways
• utilities including wind generated electric lines, oil and gas pipelines, and transmission lines for broadband and other telecommunications services

Plans call for the TTC program to be developed in phases as needed. Route selection will result from collaboration between TxDOT, regions, local communities and advisory committees. TxDOT will oversee planning, construction and ongoing maintenance, while private vendors may be responsible for majority of the daily operations.

The proposed TTC-35 corridor generally parallels I-35. Where possible, TTC-35 will develop from existing infrastructure. The initial study area is approximately 600 miles long, extending from north of Dallas/Fort Worth to Mexico and possibly the Gulf Coast. Utilizing the TTC financing tools, projects along the corridor will develop further as local needs demand.

The TTC-35 right of way acquisition process will be no different from the process used to acquire right of way for any other road. As with other projects, TTC-35 right of way acquisition procedures would include an independent appraisal and determination of fair market value, an offer and opportunity for negotiation, and the same due process rights to a special commissioners hearing and jury trial if the property owner is not satisfied with the TxDOT offer.

Property owners whose land is acquired or adversely affected by any public project will receive all of the compensation the state constitution guarantees and the Texas courts have deemed appropriate over the years. Generally, that includes the fair market value of the property acquired, plus all compensable damages special or unique to the owner’s remaining property, which may include deprivation of reasonable access, loss of or damage to improvements including fences.

With a project of this magnitude, we provide additional information that may clarify questions or concerns of the public.

Myth: All land will be acquired under eminent domain at pennies on the dollar.
Reality: Any land needed will be purchased and property owners will be paid fair market value. There will be an independent appraisal, an offer, and opportunity for negotiation. If the property owner is still not satisfied with the TxDOT offer, he or she has the same due process rights to a special commissioners hearing and jury trial through the judicial system.

Myth: TxDOT has the authority to condemn property for private use and operate commercial facilities associated with the Trans-Texas Corridor.
Reality: TxDOT can only acquire property for transportation purposes. If customer service facilities are needed, such as gas stations or convenient stores, TxDOT may acquire the land but the private sector will provide those services. In other words, any competition will be among private businesses and the landowner retains development rights. According to state law, no developer of TTC projects will be allowed to operate these facilities.

Myth: TxDOT will transfer its eminent domain authority to a private entity hired to develop the corridor.
Reality: TxDOT cannot delegate the power of eminent domain to a private or third party. A developer for the TTC will not be condemning land.

Myth: All land will be owned by the Spanish government.
Reality: Projects under the TTC program are state-owned and any land purchased or transportation improvements built will be done in the name of the state. All property acquired will be the property of the State of Texas. Should Cintra Zachry or another private group develop any portion of TTC-35, their role will be to finance, design, build, maintain, operate and collect a portion of tolls for a period of time.

Ed Pensock, Jr., P.E. Director of Corridor Systems TxDOT
Turnpike Authority Division
Dieter Billek, P.E. TTC-35 Project Manager TxDOT
Turnpike Authority Division

www.dot.state.tx.us
www.keeptexasmoving.com

 

Review: Avant & Mitchell, LP

What is the practical impact of the Trans-Texas Corridor plan?

For decades Texas has been justified in boasting that it maintained one of the finest and largest road systems in the country. Although property acquistion to build roadways is not new, the Trans-Texas Corridor (TTC) is a new type of project that encompasses more than the movement of cars and trucks – it is a concentrated right of way for motor vehicles, pipeline products, utilities, high-speed rail and associated private services within an area approximately a quarter of a mile wide with minimal interaction with or access to the area it traverses. With a broad corridor design (perhaps 1,200 feet wide), its primary function is to connect regions, not for local use. Local areas may reap few, if any, of the benefits. Opinions in the general population vary. However, when the bulldozer is at the doorstep, local owners may become painfully aware that the project affects local land use and compensation factors in unique and, sometimes, detrimental ways.

The current TTC plan involves a privately operated toll road system that is new to rural Texas. There are features that are substantially different from an open public highway system of free roadways, which are fully owned by the Texas citizens and available for unlimited use. The impact in communities near the TTC pathway may even have a chilling effect on improvement of “competing roadways”* that are available for local use.

TTC is a large-scale experiment incorporating sweeping changes in concept, design as well as funding. The long- term transfer of public rights and control of roads to private entities involves the transfer of public rights and powers, by contract, to privately owned companies. Functions will be performed by contractors that historically were performed by career public servants who were under direct governmental regulation and control. Although the legislature has previously granted the power to condemn to certain privately held companies, the scale of the TTC project is unprecedented in its potential impact. Actual condemnation suits are expected to be handled by the Office of the Attorney General, but the “negotiation” stages of land acquisition are expected to be handled by TTC contractors. Land owners evaluating an offer received from the contractor, must evaluate it within the specialized context of a TTC project.

When the dozer is at the door: Are the TTC differences likely to affect individual condemnees?

The first and most important factor that an owner should keep in mind is that the process of acquisition of right of way is a power that is aggressively used. The individuals may be nice people, but the process is adversarial. There is no government employee or private contractor charged with assuring that the “property owners will be paid fair market value”.

Condemnees are not required to agree to a value, but must stand up for their rights to fair compensation. Failure to understand and evaluate the specialized appraisal and land use questions that are unique tocondemnation practice, and often unique to their parcel of land, can and often do result in undercompensation.

Initial contact and communication will typically be from a private contractor or “negotiator” who, after requesting entry to perform inspections and surveys, may make an offer to purchase based upon an inadequately supported appraisal, or ask for a response to the offer on a tight timeline – usually ten days.

The body of appellate decisions used to protect governmental entities acquiring land for projects that benefit the public is likely to be applied to TTC acquisitions, without practical distinction, in most cases. There is little likelihood that an individual owner will prevail on the Courts to “stop” a taking. Factors that demonstrably reduce property value, such as excess noise, proximity, visibility, limitation of access, inability to market a property that lies in the pathway and condemnation blight will be hotly contested or excluded from the compensation offered. Access provisions (meaning the right to get to and from property that fronts the TTC) are in many locations so different from our traditional public facilities that values may be impacted negatively.

The extended time frame for completion (estimated at 50 years) and uncertainty will impact those citizens that lie in the proposed pathways, and may impair development plans, the ability to lease, sell or finance improvements during years of waiting.

In conclusion, the TTC project involves sweeping changes to known Texas condemnation paradigms. The economic, environmental, and political overtones of the TTC project will undeniably change the landscape of Texas eminent domain practice for years to come. The TTC concept may well be modified in the years to come, but the long-term contractual obligations to Cintra-Zachry and other companies are designed to commit future administrations. Although the TTC designers will have long since retired before Texans see the final result of this experiment, the impact upon individual owners has already begun.

Jeff Avant and Elliott Mitchell are condemnation attorneys each with over 20 years experience in appraisal disputes and condemnation law. They have represented landowners as well as condemnors, including TxDOT, before forming Avant & Mitchell, LP, representing property owners, people and businesses throughout the state.

www.avantmitchell.com

 

 

Baylor Business Review, Fall 2008

by Franci Rogers

For most Americans, the closest they come to real estate transactions are the basics: purchasing a home, renting an apartment or leasing commercial office space. And most will agree, those transactions are complicated. To even begin to think about commercial and investment real estate can be downright intimidating.

Students entering the Real Estate curriculum at Baylor’s Hankamer School of Business may start off feeling a bit overwhelmed by their strange new world of technical terminology and formulas. But by graduation, these students have always been well versed in this area of business, and ready to tackle the “real world.”

Now, thanks to a partnership with ARGUS Software and Integra Realty Resources (IRR), by the time they leave school, Baylor graduates will have already faced real-world problems and found real-world solutions.

ARGUS Software is a Houston-based company, which creates software for the commercial real estate industry. Real estate professionals in all aspects of the industry use software created by ARGUS for valuations, portfolio management, budgeting and many other functions. Through its University Endowment program, ARGUS offers copies of their programs to accredited universities. Integra Realty Resources, a commercial real estate valuation and counseling firm, provides real life data Baylor professors can use to create an infinite number of learning scenarios.

“ARGUS is really cutting edge in the industry for real estate investment analysis. It is the recognized software in the industry,” said L.M. Dyson, associate professor of Finance, Insurance and Real Estate. “It is an excellent teaching tool.”

The software, Dyson explained, allows real estate professionals to accurately value commercial properties in industrial properties, retail space, office space and multi-housing. And valuation can be a complex and extremely important part of any real estate transaction.

When the value of a single family home is determined, most often appraisers look at comparable home sales in the area. Commercial property is valued by the amount of income it generates. The more money it brings in, the more valuable it is. But it is far more complex than it appears. Many factors, including building cost and market fluctuations must be considered. To determine the amount of income a property is producing, a real estate professional must examine things like vacancies, uncollected rent, discounted leases, lease durations, and many other factors.

“Say you are going to value a shopping mall with 150 tenants,” Dyson said. “There are big anchor stores, which will have completely different deals on their lease than, for example, a 500-square-foot cell phone kiosk tenant. The cost is different; the lengths of the leases are different. And leases are also set during a huge variety of economic and market conditions over the years. All of those things need to be factored into the income potential of the mall.”

When changes occur, it can create challenges for everyone, especially students just learning the business.”With ARGUS, we can put in all those factors and see the results,” Dyson said. “The beauty of this software is that you have the ability to observe the results of change quickly. With other programs, you have to go back through every lease and manually change those assumptions.”

Pairing the ARGUS software with the data received from Integra Realty Resources gives students an even more realistic picture of what can, and does, happen in the real world. Integra provides real-life cases, which have been altered only to protect their clients’ identities, to Baylor professors. Using the software, students are asked to complete the same analysis on each case as the original appraiser. When complete, they can even compare their findings to what Integra originally determined.

“This has made it so much better,” Dyson said. “We’re adding more reality to the process for our students, and that is worth all the effort. With any analyzing software, the output is only as good as the input.”

David Dominy, managing director of Integra Realty Resources in Houston, is pleased to provide the data Baylor students are using with the ARGUS software. “We assist them by providing case studies,” he said. “In academia, things can sometimes get a little ‘pie-in-the-sky.’ But these are actual situations, and things students will have to deal with when they graduate.”

In addition to getting a taste of real life, Dyson said, his students are gaining confidence by using the software along with the factual data. “The first step is pure mechanics: students learn the software. Success is getting the same answer (as the appraiser),” Dyson said. “The next step is for the students to do their own inputs.”

This is where imperfect occupancy rates, prices and market values begin to alter situations. “The marketplace doesn’t always fit into that perfect black box,” Dyson said. “ARGUS, and the real life data, teaches students to handle the curves. They have to use their own intuitive judgment. And that’s invaluable.”

The added bonus for students, said Dominy, comes when they are looking for their first jobs. “ARGUS is a program that takes a lot of getting used to,” he said. “Someone coming in to the business already trained in the program, understanding the whole program and how it all works together, has a chance to really do well.”

Sam Moss, BBA ’04, now works for IRR and was in one of the first classes to use the ARGUS program while at Baylor. “It provided a foundation to continue my learning here,” Moss said. “Even just having exposure to the terminology gave me a better understanding of the real world.”

Blake Shaver graduated from Baylor with a degree in Real Estate and Marketing in May 2008. He also joined IRR, having had ARGUS experience from school. “At first it was a lot of information being thrown at you all at once,” Shaver said of his first several classes. “But the only way to learn it is to actually do it. When I came here (to IRR), it really helped. It speeds up the process of doing things on your own.”

Shaver also values the time he spent in Baylor’s CNL Real Estate Learning Lab, a specialized classroom established in 2006 funded by Baylor supporter Mr. Robert Bourne. “Being able to learn on the same equipment I’m using now, and being able to follow the professors on the big screen saved so much time,” he said. “It allowed me to learn more quickly once I came here.”

Dominy, a 1982 Baylor graduate, and the father of two current Baylor students, said the benefits of the partnership between Baylor, ARGUS and IRR are apparent. “We are trying to do what we can to help,” Dominy said. “And what we get are quality people we’ve hired out of Baylor. They are knowledgeable, great producers with an outstanding work ethic. They’re just topnotch all the way around.”

 

 

Baylor Business Review, Fall 2008

A 1979 graduate of Baylor University’s Hankamer School of Business, where he earned a BBA in Marketing and Real Estate, Gary Keller is co-founder and chairman of Keller Williams Realty – the fourth largest real estate franchise company in North America. He is a best-selling author of a series of titles that includes, The Millionaire Real Estate Agent, The Millionaire Real Estate Investor, FLIP: How to Find, Fix and Sell Houses for Profit, and the recently released, SHIFT: How Top Real Estate Agents Tackle Tough Times. In 2007, Gary Keller’s $5 million donation to Baylor University established the Keller Center for Research in Residential Real Estate Marketing.

Much has been made of the recent real estate market downturn. As the media decries the dismal state of the real estate industry, it’s been very eye-opening for me to observe the countless agents who have continued to thrive in this market. For many, 2007 and the first half of 2008 have been the most productive phases in their real estate careers.

It’s amazing how some people always manage to find the opportunity in whatever obstacles they stumble upon. When we are in the midst of hard times, it’s difficult to view challenging circumstances as anything but burdensome. It tends to only be in retrospect that we realize the gifts that grew out of the disruption. How much more productive our lives could be, if we were able to recognize those gifts in the moment.

I received an email from the team leader of our real estate office in Ann Arbor, Mich. On the outskirts of Detroit, which tends to top the list of the hardest hit real estate markets in the United States, the Ann Arbor market center had a record-breaking month in June 2008. For those who are steeped in a sense that the production and profits ebb and flow with market ups and downs, a report such as this is nothing short of mystifying. How are the agents at our Ann Arbor market center, and other agents like them, managing to soar when the market appears to be shooting holes into high hopes for the year?

It was this question that led me, along with my co-authors, Dave Jenks and Jay Papasan, to turn our focus to the creation of our latest book, SHIFT: How Top Real Estate Agents Tackle Tough Times. What we discovered as we filtered through the collective wisdom of some of the most powerful and inspiring real estate professionals in North America is that among the winners in business – or in life for that matter – market conditions tend to be a mere detail – not the determiner of success. The common thread among top achievers is a commitment, to seize and to make a contribution within the framework of current realities. We built the book around the fundamentals for surviving, thriving and emerging from this market stronger than ever before, realizing that this market is probably one of the greatest short-term challenges and yet also one of the greatest long-term opportunities that real estate agents may ever face in their careers.

Indeed, successful people are always and relentlessly shifting. Either in response to the market or their own goals, high achievers don’t hold on to the past. Problems to solve and challenges to overcome are simply a part of life. The real difference between people is in how they deal with them. If you want to make problems lessen or have less of them, I suggest you learn to become comfortable with being uncomfortable. Learn to shift.

You’ll be clearer if you always think of any shift as a shift of choice. You will rarely get to pick the circumstances, but you will always get to choose what to do about it. So if the market shifts, you’re shifting. And if the market isn’t shifting, you’re shifting. In other words, to be your best, you can’t be shiftless. You’re not going to rest on your past or assume that your future is set. To reach your truest potential you are going to become like a priceless diamond and always apply the necessary pressure to harden and shine. And no matter the market, you choose to enjoy the ride. The good and the bad, the hard and the easy all work together to shape the person you become.

As Abe Lincoln said, “Nothing is either good or bad, but thinking makes it so.” Many real estate agents are currently experiencing the “Gift of the Shift” and perhaps more than one. Whether we see the current circumstances as full of difficulty or full of opportunity, they will most likely turn out exactly as we see them. In the end, we determine the times by our choices. Our choice can be to either try to avoid the realities and wish they weren’t true, or to embrace the opportunities they offer. By choosing to embrace opportunity, you’re choosing to shift.

Keep in mind that average is as average does. Good is as good does. And great is as great does. What you do is who you become.

A lot of people struggle with this concept. They truly don’t understand that if they want to achieve at a certain level, that they must think, act and organize their lives accordingly. It’s really that simple.

I believe it is thoughts before actions and actions before results. This means unless you’re counting on a lot of luck, you must think and act like what you desire before you’ll ever get it. So, in other words, it’s thoughts plus actions then results – in that order.

I was visiting with a real estate agent recently, and as I truly got a sense of what he was capable of I made this comment: “I think you’re a $50-million-dollar a year producer masquerading as a $1 million dollar a year producer.” He was shocked and asked what I meant and I said “all I mean is that you appear to have amazing potential, but you’re thinking and acting like a $1 million dollar producer.” I told him he was underperforming because he was under acting. I said, “If you want to grow to the next level you better start acting your wage.”

Real estate is a cyclical business, and to be successful in real estate over the long haul, you need to not only accept that truth, but embrace it, prepare for it and find the opportunities in it. Your determination, your preparation and your implementation will put you on the right path to your goals. You will consistently be in step with the consumer and ahead of your competition. Others may see things as good times and bad times. You will always see them as opportunity time.

One of the greatest myths ever perpetrated is the belief that you succeed your way to success. This isn’t true. In fact, just the opposite is true. You fail your way to success. Everyone fails. The ones who succeed are the ones who keep going. The ones who fail are the ones who don’t.

Zig Ziglar was right when he said “a big shot is a little shot that just kept shooting.” Everyone falls down, but not everyone gets up. The trick in life is to get up. The world won’t judge you by your failures, but by how many times you get back up.

 

 

Baylor Business Review, Fall 2008