Proforma merely a starting point in predicting a property’s potential

August 9, 2010

Have you heard the one about the real estate developer? He never met a proforma he didn’t like.

On the other hand, as an operator, I want to know, first and foremost, what something is going to cost me to operate. During my many years of developing and managing multi-family properties across the Midwest with Village Green Companies, I was known (affectionately?) as the “Budget Monster.” It was a title I relished borne of an approach that has served me (and my clients) well.

Every budget or proforma, first and foremost, has to be carefully developed and scrutinized. Dover Realty Advisors subscribes to a system of “sources and uses” which creates internal escrows; an inherent discipline for properly handling hard and soft project expenses – everything from legal to accounting to inspection work.

It is imperative that there is absolutely no guesswork where cash flow projections are concerned. If rents are too low and costs are off the return will not be there and what you thought would be a 10% return is suddenly 4%. You need to know where every dollar is coming from and where it is going.

Also key for analysis: What’s happening now in a particular area you are looking to develop. For example, are competing properties on the drawing board (a negative), or, are transportation/infrastructural improvements in the works (a positive).  How about with regard to the demographics of your potential customers? Are factors related to age and income lining up in your favor? Are these individuals there now? Will they stay? Are more coming? If you are going to have to wait 5 years for a particular neighborhood to transition in your favor, or, if it is poised for a downturn, more than likely that area is not ideal or even viable.

The proforma, then, should be a starting point for determining a property’s viability. From there, do your homework and then some.

Sometimes the best deal you ever did was the one you didn’t do.


Gulf catastrophe exposes rudderless leadership

July 6, 2010

It is very easy to jump on the popular bandwagon and attack those in charge of the BP disaster, yet I feel it is important to examine (and hopefully learn from) the lack of leadership occurring on many different fronts – from the middle of the Gulf to corporate offices in England to the White House.

Who, exactly, is in charge here?

While the roots of the problem may go back to previous administrations and the Department of the Interior, President Obama and BP officials have totally dropped the ball in their response and (mis)handling of the situation from Day One.

It took far too long for this crisis to become a priority for the administration. BP’s initial communications efforts were no better with (now) outgoing CEO Tony Hayward spewing forth a series of unfortunate and inappropriate sound bites (remember the ‘it’s a big ocean’ quote)?

And, unfortunately, amid growing public discord and pressure, when the president did finally get involved, his lack of executive managerial or leadership experience in handling a crisis of this magnitude was sorely evident. President Obama is smart, compelling and, at times, a brilliant orator. Here, however, he was too scripted, too academic and too short on practical problem solving experience.

In good times and especially in bad, those in “command” have to be immediately visible and tangibly demonstrate they are 100% focused on the task at hand. In crisis situations this means assessment, determining answers and, ultimately, decisive and corrective action.

In the Gulf, we need rolled up sleeves (and pant legs), steely determination and true solutions.  In short, we need leadership. Instead, it remains in short supply.


Let’s shake on it

June 30, 2010

Remember when someone’s word meant something?

I can still recall the days when a simple firm handshake sealed a pact. No need for lawyers or pages of documents with footnotes to sign in quadruplicate.  You simply looked your potential partner in business squarely in the eye and moved forward in earnest and with best intentions.

So, what happened? Somewhere along the way, we stopped trusting each other.

Unfortunately, precedents of bad behavior set the tone for a bad business environment.  A litigious society, further, forces one into an often defensive stature where it is imperative to protect yourself against people who say one thing and do another. To be sure, even supposedly “fool-proof contracts” designed to avoid future disputes, are often not worth the paper they are written on.

Thankfully, it is not all “doom and gloom” and Gordon Gekkos

hellbent on stabbing you in the back in order to feed egos and fatten back pockets. In fact, in the wake of high-profile cases of corporate deceit (from Enron to JP Morgan), there has emerged a movement in the business world towards renewed honesty, integrity and transparency.

Portraying and maintaining a positive image and reputation are important again. (Just look at the NFL and the intangibles, beyond talent, that helped make Tim Tebow a first round draft pick).

Today, I still prefer the handshake to seal a deal and I continue to maintain many arrangements, in particular with colleagues, sans paper.  Who knows, maybe we are on the path to once again doing what we say we’re going to do as a rule and not an exception.