On Monday October 5th the Real Estate program hosted a presentation by management consultant, real estate professional and sustainability expert Colin Coyne (KSM ’85). With several speaking engagements planned at Kellogg, Mr. Coyne spoke specifically to the current commercial real estate market in a presentation titled: “The Collapse of the US Financial Markets: Implications for Real Estate, Sustainability and Kellogg”.
Mr. Coyne asked the group what they hoped to learn from his presentation. Hands shot up expressing interest in where the real estate industry is going, where the jobs are, whether green building can be profitable and how students can make a positive impact by promoting sustainability in their real estate careers. To answer all of these questions and assess where the current situation is, Mr. Coyne walked the group through what he termed “Anatomy of a Meltdown”, reviewing the events from 1988 on that lead up to the crash of 2008.
“From the period of time between 1998-2008, lenders were incentivized by fees to write an increasing number of loans, while real estate developers, who borrowed more and more for development, enjoyed the benefits of highly levered properties with minimal amounts of their own equity invested” Mr. Coyne said. Cap rates sunk as low as 3% and larger loans were taken to cover the cost of rising property values, resulting in buildings being sold at unrealistic, unsustainable values.
At one point, Mr. Coyne described how banks were lending on value that did not exist, illustrating the dangers of high leverage when a building loses even 10% of its value. When the economy started to experience distress, the loss of value meant that many properties - both commercial and residential - were worth less than their mortgages. This fact, compounded with the lack of re-financing and lack of available buyers, left many developers and investors without alternatives other than foreclosure.
“Value will come back to stable levels in the long term” Mr. Coyne advised, “but the holding period will be longer, which is more traditional for real estate.”
“The strategic implications of this very much point to building green. Properties that are highly efficient, high performing, and healthy will be the winners.”
Mr. Coyne advised students in real estate that retrofits, recycling for profit and flexible interior systems will become increasingly common, and he encouraged developing solid knowledge of green building practices.
The highlight of the presentation was Mr. Coyne’s “Lessons from the Ledge” in which he shares the lessons he learned in his 25 year career in real estate and upper level management. Among them, a few lessons that seem particularly relevant in the current environment; “when speculators show up, sell and get out because true value is being destroyed” and” just because you can doesn’t mean you should”. Mr. Coyne also spoke about the importance of maintaining a good reputation, as the real estate industry is close knit. He also stressed getting involved with the community in which you buy and develop real estate because that community is what will sustain you in the long term.