The adage “a rising tide lifts all ships” rings especially true during a bull market. Recent years have been good to our region and many of us have benefited from the booming economy. But as deal flow and business in general trickles, we are reminded that periods of prosperity inevitably give way to hard times. There’s no question that the problems we’re facing require more than a quick fix, but by revisiting the basics of business development, we can prime ourselves for growth once the good times return.
The first step in going back to basics is keeping poised and focusing on that which is within your realm of control, rather than getting caught up in the panic induced by daily headlines. It is a common reaction to seek cover, slash business budgets and wait for the storm to pass; but the fact is that businesses that stay front-and-center despite the hard times are usually the first to recover.
Having said that, there are a number of things you can do to weather the storm. While there are countless fundamentals unique to each industry, the following are four of the “basics” that every businessperson should prioritize:
· Build Relationships – Get to know your clients, customers and colleagues and develop a clear understanding of their personal interests and business objectives. Beyond your existing relationships, invest in new relationships with members of the business community who can help keep you engaged and in front of key audiences.
· “Smart Communication” – Let’s face it: there’s a lot of anxiety in the business world today. Now is the time to build confidence in your business among both internal and external audiences. Doing this will establish healthy lines of communication that can be put to good use when market conditions improve.
· Exceptional Client/Customer Service – Many companies claim to be “client-focused,” which is easy to live up to when deals are flowing and serving clients is part of the business cycle. The challenge comes when business slows and natural client contact becomes more infrequent. When this happens, creativity in client outreach is key. Send an article that relates to a personal or business interest of theirs, stop by to say hello once in a while – anything that demonstrates clients are top-of-mind and that you are committed to addressing their needs.
· Get Involved – Community involvement and business go hand-in-hand. Deal flow might have slowed down, but professional and community organizations are moving full-steam ahead. Aligning yourself with premier organizations not only helps you rub shoulders with the right people, but it demonstrates your commitment to making a positive impact in the community in which you serve. People want to work with people who care, lead by example and make a difference. Getting business cards and following up is nice, but showing your peers how you can make a meaningful difference – through participation in committees, boards, etc. – is ultimately how you will gain respect, and in turn, see the fruits of your labor pay off with more business referrals.
The basic fundamentals have helped us get through tough times in the past, and if past is prologue, then embracing – and acting upon – these principles is what will help get us back on track today.
As we rapidly approach the end of January and seek to find some form of clarity on valuations moving forward, we continue to be faced with tight credit markets and deteriorating property fundamentals. While we are encouraged by the strong level of investor interest in a number of our property offerings and the fact that two of our deals have gone “hard” over the last two weeks, as well as the amount of equity on the sidelines, risk aversion continues to be the primary focus of many investors. Assets with any significant level of risk suffer from investors requiring disproportionately higher risk premiums similar to high yield corporate bonds. The highest quality properties with long term investment grade cash flow and stabilized properties below $25 million will likely drive the sales market in the early half of 2009 as investors seek safe yields and pursue properties that can be financed as lenders have less exposure in this price range and less equity is required from investors.
President Obama and the American real estate industry have a mutual interest in turning off the twin economic engines that are driving the nation’s financial downturn—the fall in housing prices and the credit crunch/impending collapse of major banks.
Most experts agree that the way to halt the slide in housing prices is to minimize foreclosures by keeping people in their homes with delinquent mortgages that have been restructured. A huge obstacle to the restructuring of home mortgages is the inability of bankruptcy judges to alter home mortgage terms. Ironically, when most debtors appear before bankruptcy judges, their largest economic liability is almost always their home mortgage—the one payment they cannot escape.
The real estate industry, with the notable recent exception of Citigroup, has strongly opposed the restructuring of home mortgages, or “cram downs,” as they are derisively termed, needed to keep delinquent home owners in their homes and out of foreclosure. However, the economic news of this week should curb the industry’s opposition to home mortgage restructuring: with blue chip firms like Microsoft and Intel laying off thousands of workers, it is now clear that present and coming corporate layoffs inevitably will cause more and more households to stop making their monthly mortgage payments and file for Chapter 11 bankruptcy, aggravating further the foreclosure crisis that keeps the housing prices falling and prevents economic recovery.
Of course, if the real estate industry is to give up its opposition to bankruptcy cram downs, it would rather get something than nothing. So, what might the real estate industry want in exchange for withdrawing its opposition to bankruptcy home mortgage restructuring? A possible answer is Fed Chairman Ben Bernanke’s idea this week of federal government creation of a “Bad Bank,” i.e., a new financial institution into which troubled banks would deposit their “toxic assets,” i.e., the discredited “mortgage-backed securities” investments now clogging some banks’ balance sheets and arousing such fear of non-payment that banks will not lend even to each other, much less to other would-be borrowers, even after distribution of the first $350 billion of the TARP program. Unlike the original Paulson plan to purchase these toxic assets at above-market prices, the Bad Bank program would involve a bargain basement purchase by the federal government of all banks’ toxic assets in conjunction with a recapitalization of the participating banks, even to the tune of ten to twenty percent of GDP, a price tag that major economists say is high but doable, provided the government acts carefully. Simon Johnson, former chief economist of the International Monetary Fund, describes the Bad Bank approach as “the biggest financial sanitation project ever.” And the benefit to the real estate industry of a Bad Bank? A process leading within several years to the restoration of the American financial industry and the resumption of available financing for real estate deals.
President Obama has signaled his desire for a comprehensive, bi-partisan approach to the economic problems besetting the nation, one necessarily built upon many compromises. An offer by the real estate industry now to withdraw its opposition to home mortgage restructuring by bankruptcy judges—a concession eagerly sought by the new president and his party—linked to support for a federal program to purge the toxic assets of banks (an approach which the federal government has shied away from since the early days of TARP) would constitute just such a compromise and position our industry in a progressive light in the eyes of Congress and the new administration. And wouldn’t we like to be seen positively by the federal government, especially when it is poised to dole out $850+ billion in stimulus spending in the months and years to come?
Developing Meaningful Success Metrics during tough economic times is more challenging than one might think. The economy is certainly not static, so why should the manner in which you assess the effectiveness of your business model not be fluid in nature as well? How do you measure success, are you measuring the right successes, and are you using the right measurements to determine your success? Complicating matters along with the current economic conditions is the reality is that each industry, sector, vertical, and micro-vertical all have unique business drivers. Furthermore, depending on how a business is positioned, where it is in its maturation lifecycle, or what its current financial condition looks like will dictate which factors may be most important to measure. In today’s column I will attempt to provide some general guidelines that will be useful to any business attempting to analyze success metrics.
I believe that most measurements can be broken down into the following 5 categories:
1. Static Historical Measurements;
2. Quantitative Return Measurements;
3. Qualitative Return Measurements;
4. Quantitative Performance Measurements, and;
5. Qualitative Performance Measurements.
It has been my experience that most businesses at least attempt to measure items 1 and 4, but often times fail to measure the other 3 categories, which also happen to be the most meaningful measurements. The best managed companies measure all 5 categories (as well as various subsets) with their focus being on items 3 and 5.
Let’s begin by stating what should be the obvious…All businesses need to monitor the basic static financial measurements of revenue, expenses, breakeven, earnings and cash flow. While analyzing these drivers will give you some basic operating information and should be measured by all businesses, they are also somewhat myopic. The reason I say this is that while historical analysis is important, it is taking the next step of using these historical measurements as baselines to calculate forward looking return drivers that will help you fine tune your business.
Quantitative Return drivers such as Return on Assets (ROA), Return on Equity (ROE), Return on Investment (ROI), Return on Cash (cash-on-cash), and Return on Human Capital (ROHC) calculations will give you more useful information than the static calculations mentioned above. The great thing about return analysis is that each area can be broken down into several more refined qualitative return calculations.
Examples of qualitative return analysis might be Return on Marketing (ROM) which is a qualitative measure of marketing expenditures and investments. Another example would be Return on Innovation which would be the qualitative measure of the contribution impact on new ideas and initiatives (see “Measuring Innovation“). These types of qualitative return drivers allow you to make forward looking investment decisions that can have immediate impact to the business.
Examples of Quantitative Performance Measurements would be items like revenue hurdles, billable time, production hurdles and service levels. These are the metrics of how an organization performs against its benchmarks.
Implementing Qualitative Performance Measurements are where an organization truly becomes productive in its analytics. These sets of metrics focus on the measurements surrounding things that develop talent, build teams, manage the customer experience, improve customer satisfaction and increase brand equity. Getting to the qualitative level of performance measurement is difficult in that it is often necessary to overcome a set of traditional leadership behaviors and beliefs.
Ask yourself this question…do you measure the metrics that are critically important, or just the ones that are obvious and easy to measure? If company leadership can make the attitudinal adjustments necessary to create accountability and focus on qualitative performance metrics they will find that it is these measurements that help to catalyze growth, enable execution and create dynamic organizations. Bottom line…locking onto the right set of success metrics will not only help you survive the recession, but may actually allow you to thrive in the months ahead.
President RDM
I listened to the CNN interview with Obama yesterday and was happy to hear he is as addicted to his Berry as the rest of us. Unlike our soon to be former President who probably cant even type an email no less operate a BB. Obama is a gadget head and understands the power of tech and how it relates to business and leadership. This is a huge PR boost for RIM the manufacturer of BB. In the real estate industry the BB has also been a powerful communication tool for brokers. We joke about the Crack Berry issues. Sure some go over the top. But the fact is it has enabled brokers and related RE execs the flexiblity to be able to do business without being tied to a desk. At my firm RDM servicing Landlords and brokers is our main focus. The Blackberry allows me to be more dialed in while being able to spend more time with my family. Below are some excerpts from the Obama interview.
US President-elect Barack Obama says he’s keeping his BlackBerry when he takes office, media reports say.
Obama told CNN that the BlackBerry was one way to stay in touch with real Americans outside of the White House “bubble”, AFP said.
“My working assumption…is that anything I write on an email could end up being on CNN,” he said.
“It’s just one tool among a number of tools that I’m trying to use, to break out of the bubble, to make sure that people can still reach me,” he told CNN.
“If I’m doing something stupid, somebody in Chicago can send me an email and say, ‘What are you doing?
Obama’s BlackBerry was always at his side on the campaign trail, but legal and security obstacles make it difficult for him to bring it with him to the White House. The US President is required by law to keep a record of every communication, and the Secret Service was worried his Blackberry could be a security risk.
The capital markets are still in varying states of paralysis. This paralysis originally set in mainly due to losses ignited by the residential sub-prime meltdown and disruption in other financial markets such as credit default swaps. These losses created a very large erosion of capital causing many financial institutions to fear for their existence and made capital preservation the main priority – not lending.
The TARP funds already committed and the expected continued government stimulus has helped to settle the capital markets but uncertainty now results from what lies ahead for economic fundamentals, especially for the commercial real estate markets. Most investors are concerned that the economy will continue to deteriorate and correspondingly impact real estate cash flow and values.
This potential significant decrease in collateral value will increase the difficulty of refinancing maturing loans in a market where capital is already limited. Also, institutions holding significant investment in CMBS maturities will be more concerned in 2009 with asset managing their portfolio rather than seeking new investments.
As a result, capital is still “semi-frozen” and any funds available, both debt and equity, will be invested on a very conservative basis.
It is my opinion that the current restricted availability of capital will continue for most of 2009, but that a thawing will begin to take place by early 2010 as the impact of the government’s full stimulus package kicks in and, hopefully, starts to improve overall economic conditions.
Readers, what is your projection for the timing of the final thawing of the real estate credit markets?
- Craig Butchenhart
Conventional leadership theory is littered with misunderstood and misapplied practices. The fact is that any practice, no matter how highly regarded, when taken to the extreme can not only erode the intended value, but can often cause great harm.
I have espoused for years now that when a practice evolves to the level of becoming a “best practice” its time has already past. Once a methodology becomes institutionalized through mass adoption it is by my definition obsolete. You simply cannot drive innovation by doing the same things in the same ways as your competition. Those of you not familiar with my thoughts in this area may wish to read ”The Downside of Best Practices” as a prelude to today’s post. In the text that follows I’m going to apply this contrarian thinking to a topic you have not likely considered as a possible area of weakness–leadership continuity.
In general, continuity of leadership is an admirable goal and something that I advise all my clients to work toward. That being said, the manner in which you work toward this end does in fact matter. As mentioned above, anything can be taken to unhealthy extremes. You see, leadership development and succession are only positive practices if they’re applied to those worthy of the investment. Do you ever wonder how businesses can fall from the pinnacle of success to the depths of stagnation in only a few short years? One of the main contributors to corporate stagnation and decline is keeping the wrong leadership team in place for the wrong reasons. Because the marketplace is ever changing, corporate leadership must adapt and change with the times in order to survive.
A lack of fluidity, development and contextual savvy can cripple even category dominant brands. Case in point; I was reading an interview with Jeffrey Immelt, CEO of GE, in which he touted the fact that his top 175 executives have been with the company an average of 21 years. While Mr. Immelt may actually believe this is a good thing, I would submit it is not; creating a fraternity does not constitute great leadership. It is simply not possible that all 175 of these executives have been the best people for their respective positions for the last two decades. Over the past several years GE’s stock performance has been in decline lagging every major market index and is currently trading near its 52-week low.
What Mr. Immelt should do is not continue to build the fraternity, but rather shake things up by bringing in fresh talent from the outside to invigorate a stale enterprise. If you want to drive innovation, lead change and create growth, stir the pot. It has been my consistent experience that when longevity of leadership is brandished as a badge of honor, it is usually just the opposite. The length of someone’s tenure is not nearly as important as whether they are the best person for the job, and whether they are performing at tier-one levels.
A Twitter user on a ferry in the Hudson using an Iphone was one of the first to capture photos of the plane. See photo.
Twitter if you haven't heard is a fast growing free mobile social networking and micro-blogging service that allows users to send updates via SMS, instant messaging, email. It has the potential to very powerful. Twitter beat out CNN with this information. How this tool applies to the real estate
industry is still undefined. Using it to keep people in your network/client base updated on market information may be its best use. Getting vacancy information quickly and directly to a client that is seeking a particular space requirement. This is way faster than calling or posting on a web site. Just enter the text send and boom its out. Because you can only type in 140 characters its considered micro blogging. This also makes it useful for sending short sound bytes. At my firm RDM we are working on using this as a marketing tool for clients. Anyone using Twitter for real estate out there? Please post your comments.
Thanks
Peter Boritz
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