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Q&A: Wharton's Gyourko Sees Big Changes Ahead in Real Estate Teaching

Joseph Gyourko is a professor of real estate and finance at the University of Pennsylvania's Wharton School. I discussed America's multi-trillion dollar housing crisis with him. It turns out MBA students care about this stuff--

BNET: So, there's a lot to talk about in the field of real estate these days. Are you looking forward to getting back to the classroom? Gyourko: I think for me personally it will be the most interesting time to teach since I've been in the profession, which is 25 years. I presume the students are thinking the same way. We're in unprecedented times and it's pretty darn interesting to think about 1) how we got here and 2) what we might do about it. In a bizarre sort of way, I'm really looking forward to it because of the tumult in the property markets.

BNET: And how would you gauge the interest level from students this year? Gyourko: Very, very high. Our demand is quite stable over time because most of our students are not majoring in real estate. They want to take one or two courses to learn about that asset class. About half of our MBAs take our real estate investment class. But now in a time like this, interest from non-majors in the topic grows dramatically. The increase in demand from non-majors who will take one or two courses will more than counter-balance the drop in people who are going to major in the industry. We won't know what that number is 'til the end of the year, but it's got to fall because the job prospects have fallen in the industry.

BNET: How differently will you need to approach teaching real estate in a major MBA program right now? Gyourko: There certainly are some new classes. I mean my syllabus has drastically changed--I teach the Advanced Real Estate Investments Analysis class. It's mostly commercial, but includes some housing. The housing section is entirely different, as you might imagine, and the debt side of the commercial part of the course is completely different because the CMBS [commercial mortgage backed securities] market closed down. So, it's really different, that's for sure. New thoughts--new questions to pose--because it's just very different than it was a year ago.

BNET: What are those new questions people in your field need to ask themselves? Gyourko: "How should we think about what house prices should be?" Bob Shiller [professor of economics at Yale University] was just about the only guy in economics to get it right--that there was a bubble in housing. The more mainstream economists among us--and that includes me--need to think long and hard about where our models went wrong and how we can fix them so we can spot this stuff in the future. The other question is: "To what extent can we help inform any new regulation or oversight?" I think that has to be very carefully done. Economics has a lot to say about that, but you don't want to over-regulate because you don't want to kill innovation.
On the commercial side, there wasn't the same kind of building, but there was a lot of over-leveraging of assets. We need to think about what the real risk of that kind of leverage is and we need to think about what sound underwriting is. We need to figure out how you really think about what credit quality is in the commercial markets going forward.

More from Professor Gyourko about the future of the real estate sector next week.

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