“If the last cycle was about speed to market and riding the wave, this one is all about intellectual capital. The company that can aggregate the smartest team will win in this next business cycle.”
This was the key message that Earl Webb ’81 conveyed on October 13th at the Real Estate Executive Speaker Series luncheon. An active Kellogg alum and member of Kellogg’s Real Estate Advisory Board, Mr. Webb sat with MBA students at the James L. Allen Center to discuss his career evolution, the role of intellectual capital and lessons from the last cycle.
Webb opened with a story of the key turning points over his 30-year career. After a stint at Continental Illinois Bank working on interest rate swaps, he joined LaSalle Partners (Jones Lang LaSalle’s predecessor) in 1985 to form its capital markets group. Over the next 25 years, he took a major role in the firm’s transformation from a 160-person real estate boutique into a global corporation with over 36,000 employees.
Having left Jones Lang LaSalle in 2009 to pursue other interests, Webb now has the unique opportunity to grow and transform the U.S. business of Avison Young, a Canadian real estate services firm, in his new role as President of U.S Operations.
Webb went on to discuss the organizational strategy at Avison Young, saying, “The traditional organizational structure of a pyramid is obsolete and has been replaced by a diamond. The top half of the diamond is intellectual capital, and the bottom half is the mission-critical support structure that you need to control. The rest of the pyramid, you outsource.” Clients today care less about the sheer scale of an organization’s resources and more about a firm’s ability to strategize and execute. Given the increasingly complex needs of corporate clients, it is this ability to attract and deploy talent within a lean organization that will differentiate real estate services firms going forward, according to Webb.
Webb also shared some lessons from the last real estate cycle, pointing out that the industry’s aggressive bets during the boom years can be explained in part by option theory and asymmetric returns – i.e. an analysis of who gets the upside and who bears the risk. He recounted the story of Macklowe’s highly-levered acquisition of seven Manhattan office buildings in 2007, likening Macklowe’s position to a call option with enormous upside facilitated by a $7 billion subprime loan. This cycle of loose lending tends to repeat itself every ten years, according to Webb, creating opportunities for smart investors to generate asymmetric returns in many cases.
Regarding real estate career prospects in the next cycle, Webb opined that there will be great opportunities on the principal side to build both experience and wealth, as well as on the corporate side as firms look to hire intellectual capital. Webb’s overall advice to students: “In whatever industries and functions you go into, look for asymmetric returns.”