Susan Hudson-Wilson built a company on her idea for analyzing real estate portfolios.
In 1994, Susan Hudson-Wilson founded Property & Portfolio Research (PPR), a real estate research and portfolio strategy firm. She sold the company in 2002, currently serves on PPR’s board, and is a member of the management committee of Hawkeye Partners, L.P., a real estate private equity firm. Hudson-Wilson graduated cum laude with a bachelor or arts degree in economics from the University of Vermont, and received a master of arts degree in economics from Boston University. She also is a chartered financial analyst (CFA). She serves on several nonprofit boards, including the Schepens Eye Research Institute of the Harvard Medical School and the University of Vermont board of trustees. In an interview with writer James Carberry, Hudson-Wilson talked about her experience as an entrepreneur and offered suggestions for those who aspire to start their own business. Carberry collaborated with Stan Ross, chair of the board of the University of Southern California’s Lusk Center for Real Estate, in writing The Inside Track to Careers in Real Estate, recently published by the Urban Land Institute.
What was your idea in founding PPR?
It was to offer a differentiated service and product to institutional investors. The service comprised a very quantitative research and forecasting system for property markets in 100 urban areas in the United States and 30 in Europe. The product offering was based on a proprietary model that I developed that enables investors to analyze current real estate portfolio performance and work out various scenarios as to future performance. Clients could buy our research service or, at a higher level, contract for a customized set of services tied to a specific application, such as buying a property, negotiating with a prospective tenant, or structuring a large portfolio. The model was the key. I never could have started my business without the proprietary model.
When did you start to develop your model?
When I was in graduate school. I had completed all my studies and taken all the exams for a PhD [in economics] when I got a great job offer from Data Resources, one of the first economic forecasting companies. I continued to develop the model while I worked for them and other employers. Then I joined AEW, a company that manages real estate assets for institutional investors, to provide research to its clients. Initially, we offered the research for free as a part of our investment advisory services. Then we ran an experiment to see if clients would pay for research in addition to money management services. They would, and they would pay handsomely for it.
When did you start thinking of starting your own firm?
At AEW, I was something of a “nudgy” employee. I always wanted to do things my way. Peter Aldrich, AEW’s founder, suggested I talk to an industrial psychologist. I did, and the psychologist asked me, “How long have you wanted to be an entrepreneur?” I had all the characteristics. So I decided to spin the research business out of AEW and establish PPR. I figured the worst thing that could happen was the business wouldn’t work out and I’d have to get another job, which was no big deal.
Did you have partners?
I had two financial partners. One also did work for the company on legal documentation, contracts, accounting systems, and the like. I later bought my partners out. They realized great returns from selling their interests.
How did you differentiate your company from the competition?
We provided institutional investors with more value, including a more exhaustive research and reporting process, and, with the model, a much higher level of portfolio analysis and more sophisticated tools for evaluating portfolios. No one else was doing our level of portfolio analysis. And to protect our intellectual property rights, we got part of our technology patented.
Who were your initial clients?
Fortunately, I continued to work congenially with AEW and its clients for a few years after I went out on my own. Ultimately, some of those clients left AEW for portfolio analytic services and came to us. As an independent research firm with an exceptional offering, we had strong credibility in the marketplace, and we were able to pick up new clients.
When did you start thinking of selling your company?
Our business grew very quickly, and in 1998, after we had been in business for about four years, I hired a real estate investment banker to explore opportunities to sell the business. We approached media companies and other potential buyers, and their message essentially was that we needed to have a longer track record as a business before they would consider an acquisition. So I went back to work.
When did you try again?
In 2002. I hired another investment banker to find a buyer. The difference was that this banker’s expertise was in information services rather than real estate. It was a much better choice. We weren’t a real estate company; we were an information company that provided services to real estate investors.
Who did you talk to?
We talked to about 30 media and information companies, and about five were seriously interested. It worked to our advantage that we had been using audited financial statements from the start, and prospective buyers were better able to analyze our business. We also managed our business on a cash-flow basis. I read an article once about a company that looked solid based on GAAP [generally accepted accounting principles] reporting, but was hemorrhaging from a cash-flow standpoint. I wasn’t about to let that happen at PPR! We didn’t take on any debt for the longest time. Finally, it got down to a bidding war between two London-based buyers, and I ended up selling the company to DMG Information of Stamford, Connecticut. It’s a subsidiary of the Daily Mail and General Trust, a London Stock Exchange–listed corporation.
How did you manage the transition to the new ownership?
I worked out a three-year agreement with PPR in which I would gradually transfer management to the next generation. It worked so well that by the end of the second year, I had worked myself out of a job. We had a very talented team and they were pleased to take the operations over. I remain on PPR’s board.
What are you doing now?
I’m on the management committee of Hawkeye Partners, a new real estate private equity firm. We are presently raising capital for Scout I, our first real estate investment fund, and expect to close in the fall with $900 million in equity capital. The fund follows a venture capital model. We will invest in emerging real estate companies in underserved markets to help finance their growth, establish investment track records, and access institutional capital.
What are your suggestions for someone starting a business today?
If you have an idea and you can develop it into a marketable product, make sure you protect your intellectual-capital rights. When you have a product to sell, beyond advice or transaction-related execution activities, you have a business that has capitalizable value. You can’t put a multiple on people, but you can put a multiple on a product.