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Short-term and long-term survival strategies.

Volumes have been written about the current plight of the real estate industry--how we got here and where we are going. The point is worth restating, however, because today's real estate depression is unlike any we have seen in the past. The monstrous debt that has a stranglehold on our economy, affecting corporations and individuals alike, will dramatically slow net absorption over the next ten years. Because of the persistent imbalance of real estate supply and demand, leasing and construction activity during the 1990s may very well be half of what it was during the booming 1980s.

To respond, effective real estate companies will recognize that development is just one facet of their total capabilities. Success in the real estate industry during the next few years will certainly require a different set of skills than companies have deployed in the past.

These skills must be supplemented by the cultivation--or acquisition--of new expertise. Gone are the days when great developers did not have to be great business managers. Today, and in the future, developers must understand and respect the service side of real estate and the recurring cash flows that it provides. They must be mindful of long-term relationships--particularly in regard to sources of capital. They must have the fortitude to look a bad deal squarely in the face and walk away from it.

The new breed of real estate professional must truly understand that synergy is created by taking a full-service approach to real estate. Third-party asset management, property management, and consulting services are low-profit methods to create future business opportunities. These disciplines refine existing skills and create new ones. They broaden horizons and produce new relationships.

To endure for the long run, however, real estate companies must survive the short term. A well-organized plan that includes the following guidelines may be the answer:

* Substantially reduce the cost of doing business. Cut overhead aggressively through automation, attrition, and the elimination of redundancy and non-essential ssrvices. Review your staffing requirements carefully. If cuts are necessary, proceed with caution. Try to find creative ways to hold the key members of your team together.

* Revisit old relationships and cultivate new ones. Even in the bleakest markets, business opportunities are available. Savvy practitioners keep an ear to the ground to stay in the hunt. Additionally, the practice of routine networking with friends, colleagues, co-workers, clients, and associates pays dividends during down markets.

* Protect existing business relationships. All developers--from full-service national firms to local regional specialists--are actively promoting third-party property management and brokerage functions as adjuncts to their primary business. It is a sure-fire bet that your clients and lenders are being courted actively by your competition.

* Conduct an internal audit of your processes and procedures. Bring your business into sharper focus and simplify your policies wherever possible. Concentrate on providing the right services for a solid client base rather than doing everything correctly but missing your market entirely.

* Invest in information systems. As the tools of the Information Age become increasingly sophisticated, it is clear that companies that can apply the most current and relevant knowledge to a client's problems--and do it efficiently--will be rewarded with the greatest amount of business. Real estate is no exception. Clients are demanding vast quantities of information, organized in a multitude of formats. Real estate organizations must be prepared to collect data and disseminate it promptly and effortlessly--without relying on additional clerical staff.

* Review employee compensation systems. To attract and retain the most productive work force, be certain that your incentives reflect the current and future goals of your company.

* Create a comprehensive, focused business plan for providing third-party services. This is a vital ingredient to long-term success. Assess your strengths and weaknesses, then design strategies and recruit the appropriate staff to pursue a firm commitment to property management, asset management, or a combination of the two.

Before executing your plan, circulate the proposal among all of your company's decision makers to ensure that it enjoys broad support.

* Do not reinvent your development experts as property managers. By the same token, do not turn your property managers loose on the development side of the business--even when the market improves. The deal-driven mentality of an outstanding development executive does not lend itself to the meticulous nature of a property manager. Though they complement each other, the value systems of these two jobs are inherently different.

Hold onto your key development specialists during this dry spell by encouraging them to be creative in repositioning or redeveloping existing assets. Hire top property managers, and plan to keep them for the long haul.

* Make the transition to third-party management successful by making a long-term commitment to it. Do not expect to turn a quick buck. In fact, the few short-term profits generated by third-party property management are being swallowed in the face of heavy competition from other hungry developers.

Remember that real estate is a cyclical business. The key is to survive the lean years while preparing for the future. Successful real estate companies of tomorrow will be those that focus very sharply today. By lowering overhead costs, cultivating current and new client relationships, and creating a clear business plan to provide third-party services, real estate firms can build a solid foundation from which to grow in the future.

Jim Patterson is president of Childress Klein Management Services, Inc. The firm, a division of Atlanta-based Childress Klein Properties, manages and leases 5.2 million square feet of office space in Charlotte, Richmond, Atlanta, Jacksonville, Tampa, and Miami.
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Title Annotation:real estate management strategies
Author:Patterson, Jim
Publication:Journal of Property Management
Date:Jan 1, 1992
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