What I Learned Teaching 400-Level Finance Majors About Syndications
For the past couple of years I've had the privilege of teaching university students about value-add commercial real estate and the finance of syndications. The classes consist of 400-level finance majors who are heading into finance as a career. As always when teaching, the students aren't the only ones who learn something. The teacher also benefits. Here are a few things I observed from my experience teaching these bright students.
Real World Experience Is Appreciated
I was struck by how engaged the students were. The reality was that they were highly interested in the subject matter. They spend most of their time studying models and theory, and the rest of their time being tested and quizzed on those same models and theory. It was refreshing to them to hear about how finance principles actually work in reality and in a real world situation.
Finance Students Want to Learn About Syndications
It's been said, and it's true, that finance looks ahead, and accounting looks behind. Finance students tend to be more entrepreneurial in nature. Syndication and private equity finance education is not a staple of most finance programs at the university level. So it's no surprise to see students get so excited to learn about how money can be syndicated to assemble real estate deals or any business deal for that matter. I shared a syndication model with the students that they had never seen before. But being well versed in matters of finance and underwriting, they picked up on the model very quickly. I shared an example of how I would underwrite a 250-unit apartment community. I walked them through the process step by step of how we would value the property, the assumptions involved in doing our financial analysis, and how we project profits and the return to our investors. Given the level of engagement, the questions they asked, I could tell that this was new material for them and content they were very interested in learning.
Some Students Are Active Business Owners
In every class it seems that there are at least a couple students who either own rental real estate, or are actively managing or developing a business. This speaks to the entrepreneurial nature of these students in the business school. Most adults have the idea that all students are cash-strapped and debt laden. While that is probably true generally, especially these days with the student debt crisis we have, it doesn't apply to all students. I found this refreshing and hopeful. The questions that the student/business owners are asking are quite specific and very engaged.
Students Are Sensitive To The Social Impact of Business On The Community
I was encouraged to field questions related to ethics and business. The students were not just interested in creating profitable businesses, but were concerned about potential affects on the community and ethical practices. Value-add real estate means we are improving properties, adding amenities and reducing costs to drive up net operating income. Part of this model is increasing rent rates. Students wanted to understand more about how we do this in an ethical way. I was able to explain that many residents in classic units are the first to pay more for upgraded units and additional amenities as it represents a lifestyle upgrade. Also, the market is brutal toward those who overprice housing units rewarding such tactics with lower vacancies and bad ratings. In all of our projects we take great care to host social events, tutoring, and other community building programs to build a sense of home for people. This is not only good for business, but reminds us that improving the quality of the lives of our residents is good for all of us.
I love teaching these classes and look forward to doing this each year. This gives me a chance to peer into the university and get a glimpse of the types of students who are heading into finance as a career. I really like what I see in these students. They are sharp, engaged, ethically aware, and hopeful. Finance is a great career choice for many students and it's so much fun to be able to add a little bit of value to their program and education.