As a freshman at Indiana University’s Kelley School of Business, Patrick Engels approached professors with an idea of starting a student-managed real estate private equity fund. Three years later, Engels’ idea has transformed into the Sample Gates Management Inc. – the country’s largest such fund (measured by dollars raised) that is managed by undergrad students.
The fund, launched today and marked by a release from the school, has raised $4.2 million from more than three dozen real estate, financial firms, and individual investors (including Kelley alumni).
“That’s what makes this so amazing. We are one of the few programs like this that are run by undergrads, and we raised our own money,” says Will Huber, student president of the IU real estate private equity program and a senior majoring in finance and real estate.
“Another great thing about this is that most of our investors are IU alumni, who support the program and are giving us an experience and responsibility that few students like us can have. These people are CEOs and presidents of these companies. The fact that they responded to us with high interest and wanting to attend our pitches and learn more about the program is so encouraging.”
INVESTMENTS, NOT DONATIONS
The school notes that the fund is made of investment money, not donations. Current and future students will invest in real estate transactions under the guidance of an investment committee and Kelley faculty, and transactions will be vetted by practicing professionals who are alumni and fund investors.
“This is something that hopefully succeeds for decades, and we believe it will be a big part of our students’ development,” says Doug McCoy, the Al and Shary Oak director of real estate, a teaching professor of finance who directs Kelley’s Center for Real Estate Studies. “This is something at the heart of our real estate program. We’ve removed the wall between academia and practice and that integration of those two allows our students to graduate as experienced professionals.”
Engels, who graduated from Kelley in 2021 and now works as an analyst at a New York investment management firm, kicked off the project three years ago when he pitched his idea to professors in the school’s real estate program. It gained early support from Kelley alumnus J. Timothy Morris, founder and partner of Proprium Capital Partners, and other alumni who helped develop the idea further. Faculty advisor Tom Peck is chief investment officer at Hageman Group. The project also required support Kelley School leadership to work through legal liability and other issues, and IU’s president Pamela Whitten and the Board of Trustees gave final approval.
STUDENT-MANAGED FUNDS RARE FOR UNDERGRADS
Student-run private equity funds are not uncommon, particularly at the graduate level. More unique to Kelley’s fund is the fact that it is managed by undergraduates and that the funds come from several investors, rather than from the university or a single donor. Further, for the Sample Gates Management fund, students will manage assets, make investments, and raise capital year round, instead of once a semester as is the case with most funds tied to specific courses.
To raise funds, students pitched prospective investors at events in Chicago and Indianapolis and met with them individually. They also gained real-world knowledge of securities laws and client management, making them attractive to top firms such as LaSalle Investment Management, PGIM Real Estate (an arm of Prudential Insurance Co.), Goldman Sachs, Harrison Street Real Estate Capital and Evercore.
“This is very much like operating a private equity business on an ongoing basis,” McCoy says. “Alumni who we’ve reached out to are shocked when we tell them, ‘No this is not donation, it’s an investment. You should expect a return on your investment and your capital returned to you.”
MORE STUDENTS INTERESTED IN REAL ESTATE INVESTING
The success of the program and the hands-on approach is attracting interest in Kelley’s real estate programs and clubs. Some 380 undergrads are majoring in real estate at Kelley’s Bloomington campus while 72 are co-majoring in real estate at its Indianapolis campus, including 31 in a new Commercial Real Estate Workshop.
In December, the Indiana Commission for Higher Education approved a 15-credit hour undergraduate certificate program in real estate at IUPUI beginning in fall 2023. The certificate may also eventually be available to working professionals, McCoy says.
Meanwhile, interest in the Real Estate Club at Bloomington doubled this fall, rising from about 250 to nearly 500. From there, students can apply to be part of the Commercial Real Estate Workshop and then work on the fund.
“It’s such an immersion into this whole world of real estate private equity that sets us apart from other programs around the country and is bringing people into Kelley,” McCoy says. “This is about the students; this is about learning; this is about the marketplace and they’re being able to land in the best places.”
Maliq Carr, co-president of the real estate club and a senior majoring in finance, wanted to work with the fund to generate wealth while making an impact on the communities in which it invests. “When you’re building a new apartment complex, a new retail center, a new mall or industrial building, you’re creating jobs and you’re genuinely making the area a better place. If you invest in real estate appropriately, you can bring a net positive to a lot of people’s lives. That’s what attracted me to real estate.”
Kelley seniors, such as Bryce Wetzel, president of the Real Estate Workshop and a senior majoring in real estate and finance, hope to complete two or three deals before graduation, but will watch with interest investments by students coming up behind them. Wetzel notes that what students are learning is immediately applicable to real estate investing.
“When you talk about investment banking or private equity, a lot of the stuff you learn in those programs are not directly applicable right out of school. You go to work for a corporate firm or get a job on Wall Street. But with real estate, everything we’re learning today can be applied to our lives right now or after school on a smaller scale,” he says.
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