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.
July 30, 2010
No matter your industry you are no doubt constantly focused on serving your existing clients with an eye toward new business. While some say that the day to day of maintaining and growing a business is a balancing act of duties between the two, I would argue that one is much more important; yet, both are intrinsically linked.
Whether you focus on multi-family and turnaround or Receivership work like Dover Realty Advisors or any service business, I feel strongly that the key to long-term success is, first and foremost, doing an outstanding job for the client and customers that you already have.
It is a simple strategy, really: You worked hard to attract a particular client. You should work even harder to build and maintain a level of trust based on honesty, transparency and superior service. Do that enough times and with enough people and, suddenly, you’ve built not only a strong client and referral base but also a solid reputation.
In turn, that reputation and foundation of satisfied customers, referral sources and business partners builds referrals and new business. Word always gets around when there is a “good thing” out there.
So, don’t get bogged down or distracted with worrying about where that next big client is going to come from. Fear is always unproductive. Instead, stay focused on and dedicated to the customers that you have. Treat them well and others will follow.
July 23, 2010
As someone who has worked within and closely watched the real estate world for more than 30 years – both in Detroit and throughout the Midwest – I am often asked for my opinion on the current economy and where I think it might be going. When looking at one key indicator, FICO, or, credit scores, the scene is far from pretty.
10 years ago, when the market was robust, just one or two out of every ten applications and scores we looked at had what we call “hair on them”; that is, some sort of “warning flag” that a particular person might be a risky tenant. Today, by contrast, six out of every 10 applications are suspect and risk from customer defaults is pronounced.
In turn, as managers and receivers for multi-family apartment and condominium properties, we have been forced to adjust accordingly. Where, in the freewheeling days of easy credit, we routinely offered security-deposit-free lease deals, now we must weigh fiscal responsibility with real and tangible risk; for example, a sliding scale menu of security deposit “breaks” (i.e. no deposit with a credit score of 750; reduced at 650 and full below 600).
It is an unfortunate ramification of risk mitigation today in an economy where a tenant is just as likely to walk away from their contract as honor it. If only these same individuals considered the long-term effects of thinking in the short term. Such irresponsible decision-making can come back to haunt in a major way down the road when trying to get a loan on a new home. Not to mention how a plummeting FICO score will adversely impact insurance costs – from health to auto. It is “pay me now or pay me later” via a slippery slope which can be hard if not impossible to recover from.
Can we recover? Yes. Will we recover? Absolutely. It will, though, take sacrifice and a new mindset to, in time, turn things around. How often have we seen it over the years? From crisis can come redemption.
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.
April 27, 2010
Every business has an unspoken set of basic rules and guidelines. We’ll call them best practices – basic fundamentals that can become pillars of success. Listen, learn and plan before taking action.
The same principals have applied for years in our multifamily business with any upgrades we perform. Customer comments and suggestions often then become trial programs; our version of R&D, to improve resident life and our communities overall.
And let’s not kid ourselves here. Our goal is to rent as many apartments at the highest possible price to net the best bottom line. The only way to do that is to listen and relate to your customers, providing them with the best resident/customer/living experience possible. Although we rent apartments, we’re still in the service industry.
So going back to R&D – at Dover Realty Advisor-managed properties, we take customer suggestions and our own thoughts, and pick specific sites to implement trial programs. This can range from anything to new technology upgrades to interior design improvements aimed at surpassing our customers’ expectations; ideally, providing them with amenities, services and conveniences they cannot find elsewhere. When we find a successful plan and work out the kinks on the micro level, we can then apply it on the macro to additional properties.
In the end, we focus on the bottom line while driving top-line revenue through a positive customer experience, mindful all the while of budgets and overall profitability.