Reading, Writing, and Real Estate

Martin Claure is the founder of Colfax Realty Group, a niche company based in Evanston, Ill., that helps MBAs and other graduate students find and invest in real estate. Claure thought up the idea for a real-estate brokerage firm catering to this group in the spring of 2002, after his own frustrating housing search.

In his second year at Northwestern University Kellogg School of Management, Claure, along with some fellow students and former work associates, decided to purchase 15 units in a nearby development project to rent out to students. Kellogg's Web site provided a link to the service. Within a year, what was then known as MBA Properties had already helped over two-thirds of the incoming class find off-campus housing.

Since Claure graduated in 2004, Colfax Realty has opened offices in Boston, New York, Evanston, Chicago, and Miami, and currently has partnerships with graduate programs at top institutions in those cities.

Through an aggressive growth model, Claure now hopes to duplicate MBA Properties' success in other U.S. educational markets and build the first investment services division created to help graduate students –- soon-to-be lawyers, doctors, and businesspeople –- manage their real estate investments.

By the end of next year, Colfax Realty Group will expand into Washington, D.C., San Francisco, Philadelphia, and Austin. Claure recently spoke with BusinessWeek Online reporter Jeffrey Gangemi. Here are edited excerpts of their conversation:

Q: How did the idea for Colfax Realty evolve?
A: My wife had been in residential real estate for four years in Florida and did really well. After my first year, we started scouting properties and walked into a construction project in Evanston. We realized that it was cheaper to buy than rent one of the nicer apartments. I was able to convince 14 people to buy a bunch of the apartments. We bought in at the first-round price of about $260,000. Those units are now selling for upward of $400,000.

The developer said that if we wanted to get our commission, then we had to open a brokerage business. Once we had our license, we decided to start helping the incoming class with its housing needs. We went to the administration and built an inexpensive Web site. The day after we linked it up with the Kellogg admissions site, we started getting about 20 to 30 e-mails every day.

Q: How did you identify your target market?
A: Our target market is extremely focused. We like it that way because of our ability to anticipate the needs of each client. MBA students were the first market we identified. Medical and law students are similar to MBAs in terms of projected income and age group, so we expanded to include them.

Then we looked to expand into other cities besides Evanston. To be a viable location for us, the cost of housing must be high because our commissions are tied to the value of the transaction. The rest of our service is free.

Q: Who are your "housing advisors?"
A: They're licensed real estate salespeople. We try to steal people from larger real estate companies who were realtors before. We also recruit and train people from our target market, pairing them with the professional. Thus we have someone who understands the market working with someone who understands the individual needs of the client. It's working out very nicely.

Q: What advice do you offer incoming graduate students?
A: I'm a strong believer in working with brokers. To find a good broker, you ask the administration and your peers. At the end of the day it's a numbers question. Most of the time you'll be spending an equal amount of money per month whether you buy or rent. If you buy, you get the ability to participate in equity. You're building your own equity as opposed to that of your landlord.

Q: How much value does property have to gain to be profitable?
A: Not much, because you have to take into consideration the tax breaks you get. If you're looking at an appreciation of between 5% and 10%, which is conservative in most of the markets we represent, then you should be fine, especially if you're exiting within two or three years. In Evanston, for example, the market has been appreciating at 13%. Even in the worst-case scenario, it's generally a good idea to buy.

Q: In what ways is this market new?
A: There is a lot of talk of a new asset category coming around in real estate. Just as you have residential, office, and retail, there's now talk of a class called "education real estate." If that were to materialize, then we would be the pioneers in that segment.

The major difference between education real estate and the other categories is its risk profile. Much of the property in university areas is isolated from certain macro- and socioeconomic risk factors, because it's tied to a different risk/reward profile. If inflation rates go up, then the rental market gets better. If you're in a university area, then it's going to benefit you.

Q: What lessons have you learned in marketing?
A: One of the things that shocked me was how fast information disseminates in our target market. If you do a good job with one client, as we did with one student at the University of Chicago, he can increase your client base immediately. He was so happy that he put a positive comment on his discussion board, and another 30 clients came in the following day. At the same time, if you do a bad job that channel can dry up fast.

Q: What are you going to do to retain clients once they graduate?
A: We're aligning ourselves with recruiters who hire many of the students we serve. The nice thing is that we know the trigger events. For instance, we know when they're going to graduate, when the offer letters go out, etc. We target our clients at those times, sending newsletters and information through the career centers at some schools.