Converting an office building into a life science center to lease to medical and biotech companies landed a team of Berkeley Haas MBA students a first place win at the 2021 UT Austin Real Estate Competition.
The competition was held Thursday, Nov. 18 and hosted by the University of Texas at Austin McCombs School of Business.
Team members include Carson Goldman, Andrew Johnson, Ian MacLean, Alex Dragten, all MBA 22, Fukang Peng, and Travis Kauzer, both EWMBA 22.
Haas bested 19 other teams from top U.S. business schools including Columbia, Yale, Wharton, NYU Stern, and University of Michigan’s Ross School of Business, and won $10,000 in prize money. This is Haas’ third first place win at this competition in the last four years.
MBA teams were tasked with creating a business plan for a building with a single tenant whose lease was about to expire. They had to consider maximizing risk-adjusted returns and demonstrate an understanding of macroeconomic trends, including the effects of inflation and the COVID-19 pandemic.
The Haas MBA team decided to convert the building into a life science center to attract multiple tenants and maximize high returns.
Team lead Carson Goldman credited the team’s win to practicing case presentations every week this semester and to work they did with their faculty advisors.
“Our coaches Bill Falik and Abby Franklin provided constant feedback and guidance and were wholly committed to this competition,” Goldman said. “Our alumni were just as important as they had volunteered weekly to judge our practice cases and offer constructive criticism,” he added.
“It’s very gratifying to see our students progress over the semester and to win first place,” said Haas Lecturer Bill Falik. “We’ve had victories, but to win first place in three out of the four years at this national competition–this has never been done before.”
This month marks the 30th anniversary of the start of the Oakland Hills firestorm, which occurred on the hillsides of northern Oakland and southeastern Berkeley, California, over the weekend of October 19–20, 1991.
Thirty years ago, Professor Nancy Wallace and her husband scrambled into their car with their family cat and a few belongings and fled for their lives as the Oakland Hills Firestorm roared through their neighborhood. The heat from the fire, fueled by dry pine needles and the Diablo winds, was so intense that within an hour almost 800 buildings were in flames.
“By the time we drove out, we were already encircled by fire and couldn’t go down the hill, but there were zero police or fire trucks on the scene. At the top of our street, I wanted to go right and my husband wanted to go left, and unfortunately I won,” said Wallace, who was at the time a new assistant professor with a six-year-old son, who luckily had stayed over at a friend’s house. “That’s when a car came speeding out and said if you go one inch farther, you’re going to die. Tom had to turn around on the rooftop garage of a house engulfed in flames…There were people ahead of us on motorcycles who were on fire. That’s not something you ever want to see.”
They made it out, but 25 people died, about 150 were injured, and about 2,900 homes were burned in California’s third deadliest wildfire. Wallace, who went on to become one of the country’s foremost experts on mortgage markets, has been haunted by it ever since. “We were told this was a hundred-year event, but my street had burned three times before,” she said. “Lots of places in California have burnt multiple times. And yet we build back.”
As wildfires bordering developed areas in the Western U.S., Australia, and around the world grow increasingly frequent and intense, Wallace has been crisscrossing the country and globe, presenting to government, business, and academic groups about the massive financial risk fires pose to the housing, real estate, and insurance markets—and to investors and homeowners. She has developed a new framework to quantify and evaluate the risk not only of wildfires, but also floods and other extreme weather events.
“The markets aren’t priced for climate change, and the situation is dire,” said Wallace, the Lisle and Roslyn Payne Chair in Real Estate and Capital Markets, chair of the Berkeley Haas Real Estate Group, and co-chair of the Fisher Center for Real Estate and Urban Economics. “Given my experience, I had an incentive to figure that out. I just didn’t have the data.”
“The markets aren’t priced for climate change, and the situation is dire.” – Prof. Nancy Wallace
Her recent working paper, co-authored by Prof. Richard Stanton; Paulo Isser, PhD 13, MBA 98, director of the Haas Real Estate & Financial Markets Lab; and Carles Vergara-Alert, MFE 04, PhD 08, now of Spain’s IESE Business School, is based on a massive data crunching effort.
It combines digitized maps on wildfire boundaries, geospatial measures of wind speed, direction and temperatures and humidity; topographical features such as slope and elevation; and vegetative coverage for 1.5 kilometer-square-grids covering all California wildfires from 2000 to 2018. The researchers combined that with data on housing prices, mortgage defaults, household demographics and wealth, and other market indicators.
“This allows us to quantify the risks of loss and the vulnerabilities in the fire insurance and mortgage capital markets, given changing weather patterns,” Wallace said.
Fire insurance rates in California have been skyrocketing, and many companies are refusing to write new policies on homes in particularly risky areas, such as canyons. Meanwhile, hundreds of thousands of homeowners have been dropped by their insurance companies. Based on Wallace’s analysis, about 1 million California homes are in high or very high-risk areas, with another 2 million to 4.5 million in vulnerable wildland-urban interface zones.
“Without a better pricing model, all the insurance companies can do is cancel the policies,” Wallace says.
Even so, Wallace and her co-workers found that the incentives in the current system are to rebuild: Wildfires have acted as a sort of gentrifying force, with people building back larger and more expensive homes. Homes in fire zones increased in size and value five years after a wildfire, the researchers found.
Now, Wallace is on a campaign to reform the hazard insurance pricing market, advocating for a switch from deterministic pricing—based on maps of past incidents—to more sophisticated probabilistic pricing, based on the probabilities that fires will occur in hazard zones. She believes the technology she and her collaborators have developed can be applied to estimate climate-change risk on housing and mortgage markets elsewhere.
“We just can’t pretend it’s not real,” she said. “We have no choice but to face it.”
The first thing real estate professor Nancy Wallace asked her students to think about last semester was rain.
“Pick a city like Miami,” said Wallace, chair of the Real Estate Group at Haas. “When it rains in Miami, the sewage treatment plants flood, the water mains back up, and the streets are flooded. The same with Houston. We’re not talking about a hurricane, which would be 10 times worse—just a regular very rainy day. Because the infrastructure in these cities is below sea level, the risk is just huge.”
And with that intro, students in Wallace’s Real Estate Investment and Sustainability class began to consider the risks for cities that are fundamentally unequipped and slow to adapt to the impacts of climate change.
From flooding to wildfires to rising temperatures and other extreme weather events, climate impacts have rapidly moved from the theoretical future to the most pressing challenges facing the real estate industry today. Wallace, co-chair of the Fisher Center for Real Estate and Urban Economics at Berkeley Haas, has responded by reshaping the real estate curriculum to focus on sustainability.
“The classes, our research, and everything that we now do will be taught through a lens of sustainability,” said Wallace, the Lisle and Roslyn Payne Chair in Real Estate and Capital Markets. “We’re addressing how climate change impacts all parts of the industry—from development and building to mortgages and mortgage-related securities to the insurance markets.”
The Fisher Center’s real estate program provides both academic and interdisciplinary training in real estate investment, real estate law, and the role of real estate development in the built environment. MBA students, along with students in the College of Environmental Design and Berkeley Law, can earn the Center’s Interdisciplinary Graduate Certificate in Real Estate (IGCRE).
Recent curriculum changes impacted two core real estate courses: Real Estate Investment and Sustainability, and Real Estate Finance and Securitization.
Project work in both classes centers on developments in cities, which occupy 2% of the world’s land mass but consume two-thirds of the world’s energy and account for 70% of carbon dioxide emissions, according to C40, a network of the world’s megacities addressing climate change. What’s more, most of the world’s urban areas are on coastlines that are at risk from rising sea levels and coastal storms.
Project work in both classes centers on developments in cities, which occupy 2% of the world’s land mass but consume two-thirds of the world’s energy.
“It’s so important that Haas is making this shift to help students approach these problems and move to solve them from the sustainability side,” said Michele de Nevers, executive director of Sustainability Programs at Haas.
The Real Estate Investment and Sustainability class, which Wallace co-taught with architect Edward McFarlan, examines the challenges and opportunities in creating the next-generation city, including rethinking density, transit, mobility, infrastructure, and equity.
Last spring, students worked on final team projects centered on sustainable redevelopment of two Bay Area sites: the Stonestown Mall in San Francisco, owned by Brookfield Properties; and the Bayfair Mall in San Leandro, owned by Madison Marquette.
Students assumed that both sites could be redeveloped with a “blank slate” approach, and their charge was to convert both sites to a mixed-use development with affordable housing and live-work-shop components.
The Bayfair Project, outlined in a class project book Wallace compiled called “Building the Sustainable City,” included ground floor retail, a solar canopy over the garage, a shared electric vehicle program, and EV charging. Students also recommended installing puzzle lifts, a semi-automatic parking system that moves cars both vertically and horizontally to create more parking space.
Looking back, Kyle Raines, MBA 21, said the project made him understand how ESG and sustainability extend to the community around a project and can help a project thrive in the long term. “Not only will it get good press, but it will help develop land around the project and create momentum,” he said.
What Raines learned in the class also helped him pitch investors when he was starting Crown Point, a real estate private equity fund. “The thing I think that most struck me from the class is how much investors care about ESG and sustainability—how creating that sense of community at that property is not only a competitive advantage, but also the right thing to do,” he said.
Angus Maguire, MBA 21, said the Bayfair Project helped him better understand the real estate industry and apply what he’d learned in class from the many industry speakers.
“I took the course because I knew I would be working with real estate developers or real estate asset owners sometime in the future in my renewable energy career, so wanted to better understand how they think about project economics,” he said.
In the Real Estate Finance and Securitization course, Wallace, who is teaching the class this semester, draws from real-world research and the students explore real estate market data in depth.
Sabin Ray, MBA 22, said one highlight was learning about Berkeley Law’s recent findings on the City of Berkeley’s well-intentioned Property Assessed Clean Energy Program. The program allowed property owners to borrow money for renewable energy systems or energy efficiency improvements, and make payments through a special assessment to their property tax bills. But the research found that the program raised the property taxes of low-income residents, while underdelivering the promised green benefits.
For their final projects, students in the class will be able to access the electronic S&P Global database through a subscription that the Fisher Center subsidized. The database includes balance sheet, performance, and corporate Environmental, Social, and Corporate Governance (ESG) strategies. Students tap the data to analyze current ESG strategies in the Real Estate Investment Trust (REIT) industry.
“The purpose of the Fisher Center subsidy is to provide MBA students with very granular firm-level data that connects the dots between performance and sustainability strategies within real estate operating companies,” Wallace said.
Ray said the sustainability focus of the course appealed to her and that the project finance work will help her as she pursues an impact investing career. “A lot of things we are learning in class I can apply to other areas of financing,” she said.
Prof. Nancy Wallace, who uses her deep knowledge of finance and the mortgage market to influence policy to protect the public good, guide UC Berkeley in complex real estate and financial issues, and help launch the careers of students for 35 years, has received the school’s highest faculty honor.
Wallace is the fifth recipient of the Williamson Award, named after Nobel Laureate and economics professor Oliver Williamson, who passed away last year. The award recognizes Haas faculty members who exemplify all four of the school’s Defining Leadership Principles.
“Nancy’s research has repeatedly questioned received wisdom, pointing out the structural weaknesses in the mortgage markets and recently sounding the alarm on wildfire risks and the urgent need for more sustainable development,” says Dean Ann Harrison. “She works tirelessly for her students and colleagues, the school, and the greater good.”
Wallace joined Haas in 1986, and is the Lisle and Roslyn Payne Chair in Real Estate Capital Markets, chair of the Real Estate Group, and co-chair of the Fisher Center for Real Estate and Urban Economics. She has served on multiple committees advising the Federal Reserve and the U.S. Treasury on financial crises and reform, and for five years was a leader on the Campus Academic Planning and Resource Allocation (CAPRA) committee, for which she won the Berkeley Faculty Service Award in 2019.
Hard-working and thoughtful
In the award nomination, Professors Candi Yano and Richard Stanton wrote that Wallace has made huge contributions without “the slightest thought of personal gain or advancement” and without demanding “recognition for her contributions.” They also noted that she is “almost universally…viewed as the hardest-working, most thoughtful voice on campus on matters of financial analysis, control, and reporting.”
Wallace played an important role at the national level as one of the very few people who warned of the 2008 financial crisis, after she recognized that the entire underlying structure of the mortgage lending market was collapsing. Since then, she has advised the Fed and the Treasury on reforms to the mortgage and banking industries. She has also warned that the mortgage industry remains on shaky ground today.
In addition to her work for the campus and the federal government, which required nearly weekly flights to the East Coast, Wallace has for two decades taken on much of the administrative burden of running the Fisher Center, including conferences, fundraising to support PhD students and faculty, and collecting an “unparalleled suite of data sources and computational resources,” Stanton noted.
Under her leadership, the Haas Real Estate Group “is now regarded as the best in the country,” allowing the school to recruit the best new PhDs to its faculty, he said.
“It is hard to think of anyone who exemplifies (the principle Beyond Yourself) more than Nancy,” Stanton wrote.
A passionate researcher and teacher, Wallace has also given generously to her students and other faculty members, said Yano, who previously served as Associate Dean for Academic Affairs. For example, when she co-teaches a course with a more junior assistant professor, Wallace often gives them her instructional points (IPs)—which faculty earn for teaching.
“Despite this, she has still managed to accumulate probably the largest teaching surplus at the Haas School,” Yano wrote.
“As long-time chair of the Real Estate Group, even if someone drops out of a teaching assignment at the last minute, she views it as so important that core real estate courses are taught well that she will often step in to teach additional courses herself, despite having a surplus equivalent to almost six years of extra teaching.”
Past Williamson Award winners are Prof. Andy Rose, Prof. Toby Stuart, Prof. Teck Ho, and Prof. John Morgan. Recipients are selected by a committee made up of prior winners and the dean.
Williamson was the winner of the 2009 Nobel Memorial Prize in Economic Sciences and was a beloved teacher and leader at Berkeley Haas. He embodied the spirit of the Haas School Defining Leadership Principles: Question the Status Quo, Confidence Without Attitude; Beyond Yourself; and Students Always.
Real estate mogul
Edward Hinshaw “Big Ed” Peterson, 84, succumbed to MDS on Feb. 17 at his home in Indian Wells, California. Peterson enjoyed a lifelong career in real estate, selling and leasing what he said was “almost every building in the San Francisco financial district.” He also led fundraising efforts for Berkeley and served as chairman of the UC Berkeley Foundation and later as trustee emeritus. Read a full obituary.