Consultant Q&A

Charles Schilke

A senior real estate, infrastructure, financial, legal, and university educational professional with in-depth experience in major corporations, law firms, nonprofits, and universities, Charles is currently the Director of The Edward St. John Real Estate Program at Johns Hopkins Carey Business School. Previously, he has been Associate Dean of Real Estate at Georgetown, Real Estate Senior Counsel at The American Red Cross, and has consulted for numerous companies worldwide.

You managed corporate real estate legal due diligence for the multibillion dollar real estate portfolio in the Exxon-Mobil merger; what’s your advice for corporate real estate teams in this age of potential environmental deregulation?

The very first thing I Iearned in the Exxon-Mobil merger (really Exxon’s acquisition of Mobil) is that large corporations generally do NOT have a single unitary inventory list of all of their real estate! With real estate all over the world, despite centralizing intentions, at least some real estate operations are stubbornly decentralized. For example, the landmen in the field would negotiate an easement to get an oil well, and almost never tell headquarters about it! I later found that neither Marriott nor The American National Red Cross had complete lists of all of their real estate either, so this is a very common problem.

Even in an age of potential environmental deregulation, it’s going to be very difficult to radically change settled environmental expectations of both the American public and large corporations, and the large environmental cleanup costs that have already been or are being incurred. For example, during the time I worked at Mobil, the company was being sued at 300 Superfund hazardous waste sites for billions of dollars of cleanup liability. In a typical purchase and sale transaction, the seller would contractually indemnify the buyer for the cleanup of any hazardous waste on the property being transferred.So I would advise corporate real estate teams to understand that, even if parties to real estate transactions allocate the hazardous waste liability among themselves, such as by an indemnification contract, the indemnification is only as good as the financial strength of the indemnifying party.

Having created the Georgetown Master of Professional Studies in Real Estate Program, directed a real estate master’s program at Johns Hopkins in a business school, and redesigned curricula for NAIOP, you have a unique vantage point on our industry’s human capital. How are today’s graduates different than 10 years ago? What blind spots should employers be guarding against?

Today’s graduates have been through a lot. Ten years ago, the first major cracks in the mortgage economy were just becoming visible with the collapse of several relatively small mortgage companies — the proverbial canary in the coal mine for the mortgage debacle that was about to happen. Back then, real estate graduates still had a real estate boom mentality. Today’s graduates have been chastened by the Great Recession, so these graduates increasingly understand how to grow the real estate economy in a healthy way without letting it get out of hand. But a major blind spot of graduate real estate education is its lack of thoroughgoing integration with general business education, including MBA and advanced finance degrees like a Master of Science in Finance degree. This often has the effect of producing graduates who are superior at real estate narrowly conceived, but do not really understand how corporations view real estate and how they manage (or fail to manage) it, and where it fits (or doesn’t fit) in overall corporate strategy. I would advise employers to be aware of this issue, and perhaps to provide some in-house training on how the employer company manages real estate in order to overcome this problem.

Having sourced opportunities and capital for environmentally advanced and green buildings worldwide, where and how would you seek out ESG investments to maximize returns today, for a risk-and-geography-agnostic client?

I am increasingly focused on real estate resilience as a vital area, and designing buildings that are at the cutting edge of resilience, uniting Environmental, Social, and Governance issues. Having worked for The American National Cross in disaster response, I have a distinctive view of resilience as a form of disaster response prevention—suggesting an emphasis upon spending more money upfront on resilience so that you can spend less later on disaster response. So, for a risk-and-geography-agnostic client, I would suggest that they try to find a real estate resilience investment that also has the quality of preventing the need for disaster response, which would maximize the value of the resilience investment.

Why did you decide to join StealthForce? What resonated with you?

There is such a wide range of real estate projects that need to be done that it is hard to begin to know where to find appropriate consulting assignments—there is definitely a large market for StealthForce’s tech-savvy real estate gig matchmaking between companies who need real estate advice and the real estate professionals most qualified to provide it. StealthForce is figuring out where to begin in this market.

Tell us about your most rewarding recent consulting project.

My most rewarding recent consulting project was serving on an Urban Land Institute (ULI) national panel to study the problems of real estate resilience, particularly sea level rise, in Norfolk, Virginia. After New Orleans, Norfolk is the US city most endangered by sea level rise. Not only is the sea level around Norfolk RISING, but Norfolk itself is SINKING, in part because of the weight of the concrete barriers that the city has used to try to fend off the sea level rise. Thus, attempting to cope with sea level rise with concrete barriers can actually make the sea level rise problem worse! With its splendid natural deepwater port just inside Hampton Roads and the Virginia Capes, Norfolk is the largest naval base in the world—but if sea level rise is not arrested soon, Norfolk will disappear within 50 years.

The panel was ably led by John McElwain, who led ULI’s extensive post-mortem on SuperStorm Sandy. Other panelists included a Harvard Business School professor who has been CEO of a major construction firm, a skilled land planner from Washington DC, economic development officials from New York and Vancouver, and the top residential appraiser in New York City. It emerged that sea level risk is vaporizing coastal property values in Norfolk. Until now, waterfront property has always been sought-after and thus expensive. But sea level rise is making the traditional high values of waterfront property plunge overnight—the valuation dimension is crucial in resilience. By skillful use of comps, the appraiser was able to show just how much waterfront values in Norfolk are plunging. Frankly, it’s scary.

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