Business Management Management Strategies
Feb 1, 2008
By: Jennifer Duell, Contributing Editor
Downturns in commercial real estate are expected. In fact, many players have made a name—and a fortune—for themselves on the industry's boom/bust nature. So it is no surprise that the most successful real estate companies have strategies to keep them strong through bad times. Few are making huge changes, although most firms are at least anxious about a severe downturn, according to Barry Barovick, a partner in The Schonbraun McCann Group L.L.P. "Everyone has a wait-and-see attitude," he said. "They're forming strategies by mixing a little bit of fear for the economy with the opportunity a slowdown might provide." Here are five strategies, suggested by industry experts, to help prepare for—and withstand—an economic downturn.
Clean House
During boom times like the past several years, commercial real estate businesses are too busy to worry about tidying up, noted Liz Kulik, a partner in Schonbraun McCann's strategy group. "This is a wonderful time for every real estate company to really pay attention to their operations," she said. That includes evaluation and improvement or enhancement of both property portfolios and business models. "Folks that are highly leveraged might consider disposing of assets," Kulik added.
Economic downturns also provide opportunities to fill vacant positions or replace underperforming employees. "It has been tough to find great people over the past five years, but I would (expect) the market to loosen up, allowing some of the better companies to be able to take advantage of folks who are available," said Federal Realty Investment Trust CEO Don Wood.
Pull In Your Horns
The old cowboy saying "pull in your horns" is especially apropos in today's market, one that calls for making sure those horns do not tangle up in anything that you would rather avoid. For the past several years, many companies have been taking on riskier projects than usual or expanding into sectors where they have little or no expertise.
But for The Alter Group, a slowing economy means that the firm will now become more selective. "We're going to be expanding more slowly in terms of land and property acquisitions and new markets," explained executive vice president Richard Gatto, noting that the firm plans to raise underwriting standards for land acquisitions and may take down only two properties in existing markets rather than four properties in new markets.
The company also may hold properties rather than settling for prices it does not like, as occurred when the firm recently put a two-building South Florida office complex on the market. The $60 million property drew several bids in the low-7 percent cap-rate range, up from the rates Gatto had expected just four months earlier. "We're seeing buyers in the market at cap rates ... 25 to 50 basis points higher, which translates to significant dollars, especially on a deal this size," he said. Alter is still entertaining bids for the property.
Stick to Your Knitting
Hills Partners Inc. plans to ride out the bumpy economy by doing what it does best: developing mixed-use lifestyle centers in the Carolinas. The company has a $350 million development pipeline, all of it in the Carolinas, as well as projects under construction in Charleston and Columbia, S.C., and in Asheville and Winston-Salem, N.C. "We actually anticipated the changing economy and we started to refocus our efforts on our backyard," said the firm's president, Bob Spratt, who noted that the industry had overlooked several vibrant Carolina markets. "The time is right to develop our product in them." Hill Partners, for instance, is developing Clemmons Town Center, a 542,000-square-foot open-air lifestyle center scheduled to open in late 2008, Winston-Salem's first such property.
Like Hill Partners, many real estate firms are sharpening their difference-making skills while making sure they also stick to their knitting. Lincoln Property Co.'s Florida division is set to develop additional office, industrial and mixed-use properties throughout the state and will bulk up its marketing efforts.
"We're concentrating on our versatility and our ability to respond quickly to market conditions and opportunities," said Scott Stanley, partner in the company's Florida office. He added that the company also plans to service existing clients while mining new ones. "The days of sitting back and letting the phone ring are over. In downturns, you have to get your name out there for the business opportunities to come about."
'Skate to Where The Puck Is Going to Be'
Hockey legend Wayne Gretzky once said that the key to being a great player was his ability to "skate to where the puck is going to be." The same is true for smart commercial real estate firms, noted Coldwell Banker Commercial president Rick Davidson. "We try to accurately identify ... within each of the product sectors where the market is heading," he said. "Then we try to position ourselves to take advantage of it."
The turmoil in the capital markets, for example, has made obtaining debt more difficult for borrowers. As a result, many commercial real estate players expect investment sales activity to nose-dive in 2008. Smart companies are focusing on other parts of the business. "If we're looking at declining sales, we should focus on the leasing and property management side of things, as well as placement of debt and equity," Davidson said. He anticipates much of corporate America needing help with expansion and contraction plans, while investors will need help navigating the debt market. Consequently, Coldwell Banker Commercial is considering a strategic alliance to bolster its position in the mortgage business.
Keep Your Powder Dry
Experts also suggest paying down as much debt as possible and arranging lines of credit so as to have plenty of "dry powder" available. But new financing will certainly be more expensive than it was a year ago. "Everybody is girding for a tough 2008 and 2009, which may or may not be the case, but having plenty of capital on hand will help you ride out a downturn," Wood said. "Cash is king in any period of uncertainty." n
By: Jennifer Duell, Contributing Editor
Downturns in commercial real estate are expected. In fact, many players have made a name—and a fortune—for themselves on the industry's boom/bust nature. So it is no surprise that the most successful real estate companies have strategies to keep them strong through bad times. Few are making huge changes, although most firms are at least anxious about a severe downturn, according to Barry Barovick, a partner in The Schonbraun McCann Group L.L.P. "Everyone has a wait-and-see attitude," he said. "They're forming strategies by mixing a little bit of fear for the economy with the opportunity a slowdown might provide." Here are five strategies, suggested by industry experts, to help prepare for—and withstand—an economic downturn.
Clean House
During boom times like the past several years, commercial real estate businesses are too busy to worry about tidying up, noted Liz Kulik, a partner in Schonbraun McCann's strategy group. "This is a wonderful time for every real estate company to really pay attention to their operations," she said. That includes evaluation and improvement or enhancement of both property portfolios and business models. "Folks that are highly leveraged might consider disposing of assets," Kulik added.
Economic downturns also provide opportunities to fill vacant positions or replace underperforming employees. "It has been tough to find great people over the past five years, but I would (expect) the market to loosen up, allowing some of the better companies to be able to take advantage of folks who are available," said Federal Realty Investment Trust CEO Don Wood.
Pull In Your Horns
The old cowboy saying "pull in your horns" is especially apropos in today's market, one that calls for making sure those horns do not tangle up in anything that you would rather avoid. For the past several years, many companies have been taking on riskier projects than usual or expanding into sectors where they have little or no expertise.
But for The Alter Group, a slowing economy means that the firm will now become more selective. "We're going to be expanding more slowly in terms of land and property acquisitions and new markets," explained executive vice president Richard Gatto, noting that the firm plans to raise underwriting standards for land acquisitions and may take down only two properties in existing markets rather than four properties in new markets.
The company also may hold properties rather than settling for prices it does not like, as occurred when the firm recently put a two-building South Florida office complex on the market. The $60 million property drew several bids in the low-7 percent cap-rate range, up from the rates Gatto had expected just four months earlier. "We're seeing buyers in the market at cap rates ... 25 to 50 basis points higher, which translates to significant dollars, especially on a deal this size," he said. Alter is still entertaining bids for the property.
Stick to Your Knitting
Hills Partners Inc. plans to ride out the bumpy economy by doing what it does best: developing mixed-use lifestyle centers in the Carolinas. The company has a $350 million development pipeline, all of it in the Carolinas, as well as projects under construction in Charleston and Columbia, S.C., and in Asheville and Winston-Salem, N.C. "We actually anticipated the changing economy and we started to refocus our efforts on our backyard," said the firm's president, Bob Spratt, who noted that the industry had overlooked several vibrant Carolina markets. "The time is right to develop our product in them." Hill Partners, for instance, is developing Clemmons Town Center, a 542,000-square-foot open-air lifestyle center scheduled to open in late 2008, Winston-Salem's first such property.
Like Hill Partners, many real estate firms are sharpening their difference-making skills while making sure they also stick to their knitting. Lincoln Property Co.'s Florida division is set to develop additional office, industrial and mixed-use properties throughout the state and will bulk up its marketing efforts.
"We're concentrating on our versatility and our ability to respond quickly to market conditions and opportunities," said Scott Stanley, partner in the company's Florida office. He added that the company also plans to service existing clients while mining new ones. "The days of sitting back and letting the phone ring are over. In downturns, you have to get your name out there for the business opportunities to come about."
'Skate to Where The Puck Is Going to Be'
Hockey legend Wayne Gretzky once said that the key to being a great player was his ability to "skate to where the puck is going to be." The same is true for smart commercial real estate firms, noted Coldwell Banker Commercial president Rick Davidson. "We try to accurately identify ... within each of the product sectors where the market is heading," he said. "Then we try to position ourselves to take advantage of it."
The turmoil in the capital markets, for example, has made obtaining debt more difficult for borrowers. As a result, many commercial real estate players expect investment sales activity to nose-dive in 2008. Smart companies are focusing on other parts of the business. "If we're looking at declining sales, we should focus on the leasing and property management side of things, as well as placement of debt and equity," Davidson said. He anticipates much of corporate America needing help with expansion and contraction plans, while investors will need help navigating the debt market. Consequently, Coldwell Banker Commercial is considering a strategic alliance to bolster its position in the mortgage business.
Keep Your Powder Dry
Experts also suggest paying down as much debt as possible and arranging lines of credit so as to have plenty of "dry powder" available. But new financing will certainly be more expensive than it was a year ago. "Everybody is girding for a tough 2008 and 2009, which may or may not be the case, but having plenty of capital on hand will help you ride out a downturn," Wood said. "Cash is king in any period of uncertainty." n
Recent Management Strategies Headlines
May 16, 2008
May 09, 2008
May 08, 2008
May 02, 2008
April 29, 2008
