John Z. Kukral, president and chief executive officer of Northwood Investors, has been an active real estate investor for more than 29 years. He serves as chairman of the investment committee and approves all commitments made by the firm. Over the course of his career, Kukral has been involved in more than $40 billion of real estate transactions worldwide, including office buildings, shopping centers, hotels, and residential property.

Kukral started his career at JMB Realty Corporation in 1982. In 1994 he joined Blackstone Real Estate Advisors, where he served as president and CEO from 2002 until his departure in 2005. During his tenure, Blackstone grew to become one of the largest and most successful real estate managers globally. Kukral served as a senior managing director of the Blackstone Group from 1997 through 2005 and was a member of the firm’s executive committee from 2000 through 2005. He founded Northwood in 2006.

What attracted you to the real estate industry when you were trying to decide what to do with your life?

I might have had a different path than most. I didn’t seek out real estate in college. I was a biomedical engineer. Everybody in my family was a doctor, and I was planning to go to medical school. My parents had passed away, and I was on my own making ends meet through college.

I happened to get into Northwestern’s medical school, and during the interview process, I started questioning whether that industry was right for me. So, I deferred acceptance for a year and ended up working for JMB Realty. They had an ad in the Northwestern placement center for an analyst position to which I applied.

What made JMB such a great training ground were the questions they asked. It was a very intuitive realty discussion. I remember their asking me, ‘If we send you out to look at a shopping center, what’s important? What would you do?’ And that answer, as a recent college graduate without any real estate or finance classes, was sort of obvious: You drive around the trade area and look at the shoppers and the stores.

My first day on the job, almost 30 years ago, I showed up and they gave me a ticket to Denver. They said, “Here are three apartments that we are thinking about buying. We want you to go and figure out what the real rents are and come back and report to us.” I talked with a couple of people a few years older than I was about what to do and how to go about finding the information I needed.

So, JMB gave me a lot of responsibility early on. A year later—the day I was to put in my deposit for medical school—I was supposed to go across the street from the Northwestern Medical School’s Hancock Building for orientation, but I was having so much fun that I never showed up.

In some ways, I have been doing the same thing for 30 years. I go out and look at some properties and figure out: Is this something we should try to buy? And can we move the cash flows up? I really enjoyed what I was doing; I was given a lot of responsibility at a young age, and I have been doing it ever since. I really enjoyed getting thrown into something new; learning it; enjoying it; and enjoying the people we worked with inside the company and outside of it. It is a great industry with great individuals and great friendships. That is really what got me into the industry and staying there.

What do you think JMB saw in you at the time?

Maybe it was the way I answered some of those questions, or that I worked hard and could get the job done. There was very little job description back then. JMB hired most people from business schools. The original placement was for a job in market research, which quickly transformed into acquisitions work. I remember, a month or so into the job, Bruce Duncan, an executive vice president of JMB at the time, running into my office and throwing a package about a property on my desk. He said, ‘Kukral, I would like to review this with you tomorrow morning and get your thoughts.’ I had no idea what to do. He asked me the next day if I calculated the IRR [internal rate of return]. Being an engineer, I had no idea what an IRR was. I had to learn it from the book that you get with the 12C [business] calculator. I had to learn the formulas for all those functions so I could understand what was coming out of it. I ended up getting a lot more responsibility than I had training for.

The company was growing very quickly at the time—it is always important to be in a business that is growing. JMB grew dramatically before I arrived in the late 1970s and it continued to grow dramatically from 1982 through 1988. I think the responsibility that they gave people was what attracted people. Back in the ’80s, JMB, Trammell Crow, and other groups began hiring business graduates to work on real estate, and the whole industry professionalized and real estate institutionalized in the 1980s, before the downturn in the ’90s.

If you look at the group of people who are graduates of JMB, you and John Shriver went to Blackstone and clearly established it as a player in the industry; Barry Sternlicht founded Starwood Capital Group; Carl Tash became a well-regarded money manager; Bruce Duncan is running public companies; and Doug Cameron is running health care companies. What allowed all these successful people to come out of JMB?

You have to give a lot of credit to JMB cofounders Neil Bluhm and Judd Malkin. [Neil] allowed people—even Shriver as a young guy and one of the first people they hired right out of school—to have real responsibility in a growing company. Neil didn’t care if you were new or if you had been there ten years. There was no hierarchy, really. If he wanted to go through a property, he would run down to your office—or he would give you a call and you would run down to his office—and spend hours going through the numbers with him. He would want you to come up to his house on Saturday, and you would sit there and go through transactions.

JMB hired very intelligent and motivated people. There were no strict rules on how you broke out from being a young analyst to working on things yourself. If you had the gumption to go do something, you could go do it. A lot of credit goes to Neil for having a flat organization. There was a hierarchy that was put in to help keep things organized, but if you had a good idea and could find a property that made sense to buy, the group would support you to get that done. It was a great training ground. We worked on all aspects of the transaction, which is something I tried to implement at Blackstone.

We try, even with our analysts, to get them out to see the properties, do the full underwriting, and if we move forward, to work with the lawyers, read the leases, get down in the weeds on the properties, and work with operational people to understand the expenses. Now we hire people and keep them for two to three years, and they move on. In their new roles, they say that they underwrite ten times more properties, but that they really don’t ever get out and see the real estate anymore. The good thing about JMB was that we were out in the field working on things. Nowadays, people spend a lot of time getting books in, running numbers, and having someone else give them inputs for rents. They just run the models. JMB was different—a very hands-on experience.

Can you tell us a little about Northwood?

In many ways, we are doing the exact same things at Northwood that we did at JMB on the property side, but growing the business the way I did at Blackstone. We try to go out and make the best risk-adjusted investments that we can. We work for our investors first and foremost. I’ve always thought that I don’t really work for JMB, Blackstone, or Northwood but for our investors. We go out and find good investments on their behalf and try not to lose their money. If we buy right, the future will take care of itself. I think that investment mentality was something that was drummed into us at JMB and Blackstone, and it is what we continue at Northwood. I also try to emulate how JMB was organized; we try to hire bright young people and give them a lot of responsibilities. We support them and allow them to grow in the business.

And you just seem to have a different view from other managers of large private equity companies. You are more property-centric in your comments and have a longer-term view. You are not trying to see if you can cut the cycle short to make a profit. Does that argue that you have a different investment philosophy or that you developed a different investment philosophy than some of your competitors?

In the early days at JMB, we always looked at owning properties for the long term. We had numerous pockets back then, but even the income funds held properties for a fairly long time as compared to today. The pension funds, separate accounts, and commingled funds also took longer-term views. We did that at Blackstone. Prior to bringing me and Shriver in, Blackstone bought a number of Resolution Trust Corporation [RTC] pools with Joe Roberts. By the time we were up and running in ’94, we had made a conscious decision that there were a lot of people chasing these pools, and we were going to chase the restructuring of the properties themselves. We felt that the better properties would always outperform the lesser ones as the cycle improved.

We always sought to buy the best-quality properties we could. As owners of properties, we took the long-term view to do what is right for the asset, and we felt we would get paid for that when we went to sell it. What we told investors is that we buy properties, we fix them, and we sell them. We basically did that. We churned through properties pretty quickly. That worked for a time when you had a fairly distressed property market and a lot of turnover of assets. When assets are overleveraged, you don’t get much reinvestment in the property because owners were generally pulling the cash flow out and not reinvesting because they do not know if they are going to own the asset two years down the road. If you looked at what was out there to buy, many properties were underinvested and underleased. So the idea that you could buy something, put capital and elbow grease into it, and get it back to what you call a core property was doable. I don’t think that it is a sustainable model over a long career. You can do it; you can always find opportunities. But it is not the bulk of the real estate market in more sustainable times.

What we tried to do at Northwood was build a longer-term model where we could invest our money alongside our investors and take the view of a private owner of real estate. If you have properties that continue to perform, why sell them just to hit a high IRR? In essence, you sell it and you buy the exact property in another city or across the street.

You pay twice as much and get half the yield?

Right—you basically pay roughly the same margin in which you are selling. Now, if you are disciplined enough to buy something that has flaws, and you can use your expertise to improve it and continue to do so, it is almost a development model. The high-return model, though, forces you to sell your assets to [score] a big win. If you bought something and through your hard work increased the value so that a year later someone is willing to offer you a lot for it, you generally sell it to bank that high IRR. If you double your money in a year it is roughly a 100 percent return, and it is not going to be sustained. It is just going down every year after that. The way the fund model works, you want to bank the 100 percent return.

On the other hand are properties that never should have been bought. Say you have a property that you bought for $100 and is now worth $80. If you sold it in a year, you have a 20 percent loss. Well, if you wait ten years, it is a 2 percent loss over ten years. You are somewhat rewarded in your IRR to hold your losers and penalized if you don’t sell your winners.
In the JMB days, we filled up a fund with properties. When we went to evaluate them, we said about the ones that we never should have bought: ‘Why should we waste so much time on that? Let’s get rid of it and spend time on the better assets where we can add more value.’

One of the things I learned from Judd Malkin is that if we can’t fix it in a year, it is gone. 

Right. If we made a mistake, we would just get rid of it. I’d rather spend my time on good assets, but the opportunistic model is just the opposite.

Last question: If one of your kids comes to you and says, ‘Dad, I would like to get into the real estate business,’ what do you say?

I think in any industry, the key is that you really enjoy what you are doing. That is the hardest thing when we hire young people out of college. They say that they want to go into real estate, but do they have a passion for it? We have a lot of very smart, very talented young people who in two or three years don’t rise to the occasion because they really don’t enjoy the business. While other people, who perhaps are not as smart, get up every day and enjoy what they do.

I remember as a young person trying to decide about medicine.All of our family friends were doctors, and you would go over to their houses and all they would talk about was operations and what procedures they did that day. I always thought that was pretty limiting. When he was alive, my dad would always say that the good thing about medicine is that once you get your MD, nobody can take your education. You can really do anything in this vast field. I think that is the same advice I give young people about a career in real estate. You don’t know if you really enjoy development, leasing, finance, architecture, planning. There are so many parts of the real estate industry, and it really fits all personalities. Hopefully, you gravitate toward a portion that you really have a passion for.

Stephen R. Blank is ULI’s senior fellow for finance. This is the fourth in a series by the ULI Center for Capital Markets and Real Estate.

Previous interviews can be found at the center’s website (