Or so those in the real estate investment management sector must be feeling.  As the music has stopped, are there sufficient chairs?

The extraordinary rise of the institutional investor in real estate for the past twenty plus years spawned an equivalent rise in the number of real estate investment managers of all sizes and types: equity, debt (whole loan and securitized), securities, international, sector specific, geography specific, etc.  Now we see a precipitous drop in the level of new capital to be provided by such institutions as they face issues of liquidity, and consequently we may well see a corresponding reduction in the sector that serves them.

We categorize today several classes of investment managers: those that are large, international and subject to foreign institution and government issues; those that are large/midsized domestic and international, but independent, owned either by private equity platforms or entrepreneurial participants; and finally, those that are small, independent and entrepreneurially owned.

We are entering a period of account transfers.  We are entering a period of “zombie” managers, i.e. those that cannot raise and invest capital on a go forward basis.  We are entering a period of consolidation, which will be a difficult process of transfer.  The landscape of providers may look materially different over the next five years (as it did after the commercial real estate breakdown of the early 1990s).

What will characterize the survivors? 

1.    Certainly a minimum “size” or Assets Under Management, allowing for financial flexibility and the ability to retain and hire the best human capital during these difficult portfolio times.
2.    The ability to fund future co-investment and therefore invest institutional capital, if raised.
3.    An enterprise that is managed with good, if not best practices versus simply serving as a “deal shop.”  We will see both the enterprise-based model and the deal-based model, but the latter will have core aspects of strong enterprise management.
4.    Teams of managers that are “rowing” together versus the stress that we see developing between teams of managers.  Breakdown in the leadership of managers is the surest way to bring down an enterprise.
5.    Leadership that can hold and motivate both senior and mid-level managers.
6.    Compensation programs that motivate appropriate behaviors relating to both the investor and the enterprise versus simply a participation in deal or fund pieces.
7.    Enterprises that are creative and willing to diversify and grow in order to gain market share (in a declining pie, the strategy of market share is imperative).
8.    The ability to bring on the best human capital that the market has to offer.
9.    For many who fundamentally understand the psychology of the investor and are able to shift/diversify into controlled accounts, club accounts and related structures that require a different style of management and investor interaction.  Organizations may require changes to their human capital, processes and procedures and rewards system to address such opportunities.

The game of musical chairs will be a stressful one and will result in a changed landscape, but those who understand how the game is changing and are prepared to manage an enterprise with strong practices will find a way not only to survive, but prosper.

— An Enterprise Perspective from FPL Associates

Here are some words of wisdom from a mortgage banker who has been through the cycles before. They hold truths for everyone in the real estate business, not just mortgage bankers. Whether you have been through tough times or not, you will get something out of these suggestions.

1. Don’t wait for the phone to ring. Pick it up and set up meetings.

2. Stay close to your lenders.

3. Chase relationships not deals.

4. Find the new buyers.

5. Be responsive.

6. Be an expert and know what you can get done.

7. Don’t get down. And if you get beat, get up, dust yourself off and get back in the game.

8. Remember, in any field there is the 80-20 rule: 80% of the business is done by 20% of the people. Be in the 20% or find a new field.

9. Remember, you are in this business by choice; strive to be your best.

10. Market and brand yourself. Your name should be known by every real estate professional in town.

11. Suppress your ego. You are a service provider. Be humble and the best at bringing people together and you’ll be rewarded.

12. Always check before you give an answer of “No, I can’t” or “Yes, I can” get that done, unless you know for sure.

13. Don’t be a zombie. Zombies show up every day and go through the motions but they are the walking dead. Know what you need to do each day to drum up new relationships and do it.

14. Stay organized and follow-up.

15. Don’t take any relationship for granted. There are a lot of hungry competitors that are calling all your clients. Make sure you inform your clients about new sources before they hear about them from someone else.

16. Have (in writing) 4 or 5 simple goals to accomplish each day that lead toward your long term goal.

17. Be at ULI, ICSC, NAIOP, etc. and network.

18. Celebrate your accomplishments!

While experience can certainly be an asset, it is not at all uncommon for it to be a severe hindrance. While I’m not prone to stereotyping, it has been my observation that there are generally two types of people: those who don’t know what they don’t know, and those who do know what they don’t know. All other things being equal, the difference between the two groups boils down to experience and discernment. Those people who don’t know what they don’t know typically tend to be either younger professionals beginning their careers who have a lack of experience, or older professionals who have not gained wisdom and maturity as they have progressed along their career path.

The Early Stage Professional:

On the positive side of the equation young, inexperienced, and energetic professionals sometimes accomplish great things because they don’t have the experience to know what they are not supposed to be able to accomplish. As a result of their professional naivete, they sometimes appear to achieve the impossible. However more often than not, young professionals operating outside of experiential and/or educational boundaries are met with failure and frustration by having what appear to be great ideas eventually unwound by unforeseen factors that only were unforeseen to them due to their inexperience or lack of discernment.

The failures and setbacks of the early stage professional can be healthy learning experiences that lead to professional maturation so long as learning actually takes place, and mistakes of naivete don’t become patterns for future disruption. It is essential that young professionals gain an understanding of where their skill sets and competencies begin and end. Once the boundaries of knowledge are understood, then definitive steps can be taken to create a plan for personal and professional growth. The decision can be made to ignore weakness by design by playing to your strengths, or you can choose to improve weak areas by closing the gap between where you are and where you want or need to be.

The Tenured Professional:

Regrettably, it takes more than time on the job to reach true professional maturity. I have personally witnessed people, 20-plus years into their careers, who have reached executive level positions and they still don’t know what they don’t know. It is all too common for these types of people to operate in a vacuum by believing that their experience alone is a cure-all for any issue or problem.

How many times have we all observed an experienced person with subject matter expertise in one area, try to drive an initiative or an agenda in another area, only to fail miserably because they didn’t know what they didn’t know? Let’s look at this issue another way; how many times have you seen an older and more experienced person fail to solve a problem that a younger and less experienced person solved with seemingly little effort? While experience is a valuable commodity, in-and-of-itself and to the exclusion of other traits and characteristics, the sole reliance on experience can be a barrier to professional growth and maturity.

That being said, I have never been a believer in the adage “you can’t teach an old dog new tricks.” In fact quite to the contrary; I believe anyone (yes, I mean anyone) can change given one prerequisite; the desire to do so. However in that vein, I feel just as strongly that change cannot be forced upon someone who does not recognize the need for change, or even worse, recognizes the need but has no desire for change.

Whether young or old, experienced or inexperienced, the best way to approach personal and professional development is to always stay in the learning zone. When you think you have all the answers is precisely the point in time when you are headed straight for the proverbial brick wall. Always seek out people who know more than you do and actively learn from them. Find a mentor or coach who can dispassionately point out your shortcomings and help you chart a path to progress.

Most things in life happen as a result of choices we make. It is clearly within your grasp to make the choice to gain an understanding of what it is that you don’t know, and determine what you want to do with that information. It’s your choice; choose wisely.