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Andrew Toby

David Shulman Guest Lectures

by Andrew Toby Monday, February 27, 2012

On Thursday, February 2nd, Tim Riddiough’s Real Estate Equity Investment class held a special lunchtime session that featured David Shulman as our lecturer. Shulman is currently an adjunct professor and advisor to the Applied Real Estate Investment Track (AREIT) here at the Wisconsin School of Business. His experience can be found in detail on the faculty page for the Graaskamp center, but to sum it up he was a wealth of knowledge from his experiences as Managing Director and Head REIT analyst at Lehman Brothers, as well as his role as both Director of Real Estate Research and Chief Equity Strategist at Salomon Brothers. He was the recipient of the first annual Graaskamp Award for Excellence in Real Estate Research from the Pension Real Estate Association, and has been an invaluable resource for Wisconsin Real Estate students.

As the real estate students begin the endeavor into understanding the world of REIT investment, professor Riddiough felt it would be in our benefit to get a macroeconomic overview from someone as well-informed as Shulman. His main talking points included GDP, employment, inflation, interest rates, and deficits.

First, he gave us a little tip on collecting economic data: “Fred is your friend”. By “Fred” he is referring to Federal Reserve Economic Data which can be accessed at I have already found this website to be extremely useful when completing “top-down” analysis for the demand drivers of certain asset classes.

His presentation consisted of a series of graphs that he pulled from FRED. First topic at hand was the ever-looming unemployment issue in the United States. According to Shulman, while there has been drop growth in the recent months, it isn’t enough to make up for the horrendous unemployment rate. He feels that several years of 250,000 jobs/mo growth is necessary to fully recover from the recession. His presentation, keep in mind, was just a day before it was announced that January 2012 say an increase in nearly 250,000 jobs which dropped unemployment to 8.3%, so perhaps we are making the first steps towards this goal.

Amongst other topics, one thing that Shulman spent a bit of time discussing is his “Paradox of Thrift” theory regarding low interest rates. The decision to keep interest rates low is a part of the expansionary monetary policy establish by Bernanke as a means to increase spending and spark economic growth. Americans can save money on their monthly mortgage payments by refinancing their homes, and lenders can afford to loan money at low rates while still earning a decent spread over the risk free rate. It is also helpful for commercial real estate, as underfunded pension funds and other institutional investors are now looking to put money into core commercial assets to produce a higher yield than their previous bond investment strategy. However, Shulman argues that, while there is an upside to this type of monetary policy, there is also a negative aspect that shouldn’t be ignored. More specifically, the effect on the current and prospective retirees, those whose retirement plan never contemplated 2% 10-year notes and who are subject to underfunded pension plans, now have a much stronger reason to save and lower their spending.

As far as a quick synopsis on each commercial sector, Shulman had the following to add:

Multifamily: Currently experiencing a boom related to the collapse in the home ownership rate and the changing psychology regarding single-family home ownership. Even for those who have previously owned a home, and even with record low mortgage rates, renting may currently be a better option financially for several Americans, and rental apartments are benefitting.

Office: Suffering from the lackluster job market. The suburban office market has also been heavily impacted by the drop in home ownership, since a high volume of the buildings are occupied by financial service companies tied to housing (banks, brokers, title companies).

Retail: E-commerce is certainly having its impact on big box retailers. As Shulman put it “Best Buy is basically acting as a showroom for the things people end up buying on Amazon”. Also, a bifurcation in customers is developing noticeably; that is, customers are beginning to trend more to either the high end or low end of retail shopping, and middle group players such as Sears and JCPenney are hurting.

Industrial: Demand is slowly recovering from the massive inventory liquidation that took place during the recession. Imports have been rising steadily, which is a good sign as much of what is held in storage is imported goods. The upcoming plan to widen the Panama Canal, scheduled for 2014, will negatively impact West Coast ports that serve as a ship-to-rail link for Asian exporters.

These topics only brush the surface of the knowledge that Shulman was able to share with us during his 90 minute lecture, which included ample time for Q&A with the room. As an AREIT candidate, I very much look forward to having the opportunity to work with David more in the future and utilizing him as a guide to mastering REIT investment theory and practice.

Andrew Toby is a first-year MBA student in the James A. Graaskamp Center for Real Estate. A CPA from California, Andrew hopes to utilize both his accounting background and the knowledge gained in the MBA program to pursue a career in private equity investments in real estate.