Investing in Emerging Markets
Course Number 1462
Lecturer Sid Yog
Spring; Q3Q4; 3 credits
This course is designed for students seeking a career in investing, developing, or expanding businesses in emerging markets, domestically and/or internationally. The course focuses on real estate and associated operating businesses like retail, logistics, hotels and certain types of infrastructure. The course is for those students who are aware of the potential and the opportunity for investment returns in markets that are often perceived as too risky, too complex, too far away, and/or too poor to generate either short-term or long-term profits. The course will be useful to potential entrepreneurs, investors, and intrapreneurs, looking to make their mark in emerging or new markets.
The class goals are to learn how to identify and asses risk in emerging markets, how to be a better deal maker, how to navigate the challenges of execution, how to structure transactions to address the potential pit falls of weak property rights and weak enforcement of contract, how to take advantage of overlapping business models and linkages, and ultimately at the core of the course, how to plan, finance, build and deliver real estate in these markets and become a leader in the industry.
The class also reimagines the classic real estate industry to include the role of real estate in many operating businesses in emerging markets - because of the relative (high) value and scarcity of quality real estate assets in these markets, which often become a supply side constraint, and therefore a hurdle, to scaling businesses such as retail, entertainment, hospitality, logistics and f&b in these markets.
Real Estate in developing, frontier or emerging markets is best learned through a rigorous and thorough understanding of the context and perspective of both the private and public sector. The macro economy, the form and role of state actors and the government, the impact of large private conglomerates and land owners and the disruptions being caused by growing populations, aspirations, increasing incomes, and social media and the digital economy are all important factors to consider in evaluating risk in new markets and finding solutions to complex issues.
Various themes recur throughout the course. The first is that market inefficiencies and the dearth of usable information can elevate perceived risk. A better understanding of the true risk (and how to mitigate that risk) can create margins of profitability. Traditional practices co-opted from developed markets without understanding of local contexts, can actually exacerbate or undermine successful development opportunities in emerging markets.
Second, is that failing to recognize the disproportionate role of government in these environments can derail the best thought through venture. In such scenarios the ability to mitigate risks is even more critically needed than in a traditional investment environment.
Third, an understanding of the critical role land and quality real estate assets play in growing operational businesses, enables leveraging real estate to deliver outsized returns. The course investigates how entrepreneurs and investors analyze development options and associated business ventures. Cases illuminate how to analyze markets and development opportunities, with emphasis on the pricing and management of risk
Fourth, that the (relatively) poor have purchasing power and represent a viable market as illustrated through affordable housing initiatives in the US and in profitable commercial and residential projects in the developing world. Market gaps (absence of products and services) and density of population can lead to opportunities. Although financial distress and the lack of infrastructure impede development, they can be overcome by innovation and creative partnerships.
Finally, the course analyzes the legal and financial infrastructure for real estate finance in developing countries. We will examine changing institutions, new private sector actors and evolving public policies. The course will address the connections (or lack thereof) to global capital markets. Cases include pure private sector responses, not-for-profit initiatives and public-private sector partnerships and demonstrate how capital markets and investor interest are turning to emerging markets.
Course sessions will revolve around cases from a diverse variety of perspectives and environments. Most cases will be drawn from international experiences. Many case discussions will include the case protagonist in the classroom. Guests include protagonists from countries like Colombia, Mexico, Russia, China, Cot d'ivoire, South Africa, Argentina, Montenegro and India among others.
Grades will be based on class participation (60%) and creating and presenting a Business Plan in small groups of 3-4 students (40%). 24 of the 28 sessions will be classroom case discussions. 3 sessions are planned for presentation of (group) business plans. Business plans could include acquisition of assets, companies, or creation of new ventures in emerging markets. Final presentations of short-listed business plans will be made to a panel of active emerging market investors.