Second-year Real Estate MBA students at the University of Wisconsin-Madison are gaining unique hands-on experience in active portfolio management as they manage a $2 million fund invested solely in REITs. The REIT fund is part of the University of Wisconsin Endowment first established in the late 1990s by three prominent alumni.
The students are enrolled in a special track of the university’s real estate MBA program known as the Applied Real Estate Investment Track (AREIT). It is described by the school as the first program of its kind in the country.
A team of between three and six AREIT participants are selected for the program each year based on their performance in a class on REITs taught to first-year MBA students each spring.
During the summer, the AREIT team writes property sector reports and gets to know some of the companies in each sector. Beginning in September, the AREIT student team is given one month to form an investment management “firm” with an organizational structure, an economic outlook, an investment philosophy, investment process and a disciplined strategy. The team then presents the portfolio management proposal to the AREIT board of advisors, a group comprised primarily of professional REIT fund managers and senior-level private equity commercial property investors, for approval and subsequent release of funds from the university’s endowment.
The team meets multiple times each week throughout the year, including meetings with faculty members and investment professionals who serve as guest speakers for the program.
“The goal of the AREIT team is to create a portfolio that will outperform the benchmark, just like a traditional portfolio manager,” says Tim Pire, a former portfolio manager at Heitman, LLC a long-time AREIT board member. Pire is the incoming director of AREIT. Tim also works with Mike Brennan of Brennan Investments and Tim Riddiough, a professor at the University of Wisconsin and the James A. Graaskamp Chair, to oversee the AREIT program.
Individual members of the team are responsible for conducting company and property sector research, making recommendations on the composition of the portfolio and participating in the team decision-making process for management of the funds. The team members follow the REIT market and analyze companies by going through publicly available information, attending Nareit conferences, questioning REIT managements and speaking to AREIT board members.
According to Pire, one of the biggest initial challenges for AREIT students is to move from assessing real estate assets on a standalone basis to looking at the totality of a company including: management, balance sheet, investment strategy, real estate portfolio and valuation. Another challenge is learning how to make fund investment decisions when facing time constraints, he adds. “There is not a rubber stamp on every stock pitched. Investment ideas are vetted and sometimes rejected. More often the students are sent back to answer questions about the stock pitch,” according to Pire.
Pire says his goal for the program is to encourage more students to become involved in the REIT industry whether on the buy/sell side or working for a REIT.
“This is a great industry,” he says. “REITs have an equity cap of $1.3 trillion. These companies own 15 percent of the institutional quality real estate assets in the U.S. There are opportunities for these students to both work as a buy /sell side analyst or to work for a REIT in a variety of capacities when they graduate.”
Steve Buller, a portfolio manager at Fidelity Investments and an AREIT board member, says AREIT is a “one-of-a-kind program, giving students first-hand experience in REIT analysis and investing using real money under real conditions.”
Buller said AREIT students have a “tremendous amount” of interaction with the board, ranging from gaining initial approval of their investment philosophy and strategy to discussing trends and conditions in the REIT market with everyday market participants.