Morphing for the Millennium: Real Estate Managers Transform Their Careers Mid-career real estate professionals are morphing for the millennium, breaking out of their traditional career cocoons and transforming themselves into the top talent that today's changing real estate market demands.
The metamorphosis has already begun as real estate practitioners prepare to take flight and take advantage of the new employment options, company structures and real estate marketplace that awaitthem. Those that will grab the attention of real estate investors, owners and key employers will be multi-colored in the experience and expertise they can offer.
According to a year-long study involving 77 companies and almost 6,000 managers and executives, conducted by a team from McKinsey & Co., an international management consulting firm, the most important corporate resource over the next 20 years will be talent: smart, sophisticated businesspeople who are technologically literate, globally astute and operationally agile. In the new economy, competition is global, capital is abundant, ideas are developed quickly and cheaply, and people are willing to change jobs often.
In a recent Fast Company interview, Ed Michaels, a McKinsey director who helped manage the study, said: "In 15 years, there will be 15% fewer Americans in the 35 to 45-year-old range than there are now. At the same time, the U.S. economy is likely to grow at a rate of 3% to 4% per year. So over that period, the demand for bright, talented 35 to 45-year-olds will increase by, say, 25%, and the supply will be going down by 15%. That sets the stage for a talent war."
According to the study, today's top people are looking for companies that are well managed, have terrific values, and have a great culture. They want a job where they have responsibility for a number of functions and where they can make decisions on their own, without having to go through a bureaucracy.
Spreading their wings Faced with a new way of working, today's real estate professionals are taking stock of their careers, looking to transform them to meet the changing demands of owners, investors and an increasingly complex marketplace. Globalization, consolidations, new technologies and changes in ownership are all forcing real estate managers to carefully evaluate their options.
In order to take flight in the new millennium, real estate managers are recognizing that they must quickly expand their set of skills so that they will be prepared for the many new and different possibilities that await them.
Continued education will be more important than ever as real estate managers work harder to acquire new skills and experience. However, the new world of work will necessarily result in a new way of learning. Cyber-universities are already fast replacing the traditional brick-and-mortar ones. Increasingly, lectures and classes are being conducted off campus via satellite or two-way video.
The Institute of Real Estate Management (IREM(r)) proactively has sought to meet the changing educational needs of real estate managers by offering flexible education options. Earlier this year, IREM conducted an asset management course entitled "Improving Income Property Performance" for real estate professionals at the Department of Housing and Urban Development (HUD) and the Rural Housing Development Services. The course was offered via satellite to 60 sites nationwide.
One of the key skills that real estate managers are learning they must master is value enhancement. Very simply, they recognize they can't afford to spend their time on things that don't add value. Skills such as financing and valuation strategies, performance measurement and strategic investment analysis are all at the top of today's managers' learning to-do list.
Strategic planning is also back as a skill that is very much in demand. Strategy gurus are in. Companies are pursuing novel ways to hatch new products and services, expand existing businesses, and create the markets of tomorrow. A recent study by the New York-based Association of Management Consulting Firms found that executives, consultants and business school professors all agree that business strategy is now the single most important management issue and will remain so for the next five years.
Butterflies are free-agents Simply said, today's real estate professionals are facing a workplace that is characterized by change -- and lots of it. Acquisitions and consolidations are king, leaving many real estate professionals facing a fork in the road. One path leads to big player companies with the corporate culture and benefits to match. The other path leads to life in the independent lane, with opportunities for consulting, training and management of niche property types.
More and more, real estate professionals are going the consultant route. Lifetime employment? Forget about it. The new goal is lifetime affiliation. Today's managers understand that just because they walk out the door doesn't mean their relationship with that company is over. Instead, it marks the start of a new stage in the relationship.
In the past, contract workers were concentrated in lower-level functions in the company, such as clerical or administrative work. Now, with the elimination of so many middle managers from corporate rosters, contract workers are being brought in to do ever more sophisticated tasks. In fact, today's consultants are helping real estate organizations define markets, competitor position, core capabilities, financial goals, acquisitions and divestitures, and R&D strategy.
Indeed, consulting is fast becoming big business as companies on the move, in trouble, or just trying to do what they do better, faster and cheaper look to talented real estate pros for advice. U.S. News and World Report reported in 1995 that median salaries in consulting included $89,200 for a management consultant; $120,000 for a senior consultant; and $194,000 for a senior partner.
Firm transformation Real estate property and asset managers aren't the only ones reinventing themselves these days. The real estate firms and corporations they work for are too. Thanks to a relatively healthy real estate marketplace, innovative forms of financing and capital pursuing opportunity, corporations are downsizing for efficiency and merging in pursuit of profitability.
According to the NATIONAL ASSOCIATION OF REALTORS(r) consulting economist, Dr. John A. Tuccillo, factors dominating the movement to consolidations include technology, capital and demographics.
"The real estate industry is aging. Entrepreneur-founders of many larger firms are often looking for an exit strategy, and consolidating occurs with new entrants into the industry, who make appealing offers," Tuccillo says.
Big, new players, such as CB/Richard Ellis, Hines and LaSalle/Galbreath, are using their substantial resources to pursue offshore profits for their shareholders. Other companies, such as Lend Lease out of Australia, with recent acquisitions of Yarmouth and Equitable, are making major moves into the United States.
To compete with these behemoths, some firms are dealing with today's merger frenzy by offering specialized services. Other firms -- mid-sized companies or networks of independent firms -- face a more uncertain future.
For some real estate professionals, these emerging supersized companies are the employer of choice, offering higher compensation based on performance, more exposure to people at the top, bigger budgets and more responsibility. Yet, for others, the merger-and-acquisition frenzy has prompted them to pursue small, fast-growing companies that offer all the entrepreneurial bells and whistles, such as fun and challenging environments, a risk-taking culture and the opportunity to create value.
Catching big players' attention For today's real estate professionals seeking the challenges and advantages offered by a big player, there are several options. Pension funds, REITs and private fund investors are replacing institutions as the dominant players in ownership. Pension funds are likely to continue to be major players in North American real estate, but less and less through direct ownership. Meanwhile, insurance companies are investing in mortgages because this niche fits their liability structures and offers the best returns within their acceptable risk parameters.
As reported in Strategic Management of the Apartment Business in a 'BIG REIT' World, published jointly by the National Multi Housing Council and National Real Estate Investor, industry guru Sam Zell predicts that conversion of real estate to public ownership will take place over the next several years, at a compound annual rate of 25% to 40%. Zell, who put together the top ranking Equity Residential Properties Trust, also estimates that only 10% of investment-grade commercial real estate is currently syndicated publicly, a figure that he predicts will increase to 17% by the year 2000. Similarly, REITs, with only 3% of the real estate market overall, will likely increase to 20% over the next 10 years, according to Zell.
To take advantage of employment options offered by REITs and other big real estate operating companies requires an understanding of their corporate culture and structure. Management style and personality within the private real estate sector has always been characterized by traditional entrepreneurial deal makers and risk takers. However, the public markets require greater discipline, and oftentimes result in a focus on quarterly earnings reports to the detriment of long-term fundamental value creation.
Mez Birdie, CPM(r), senior vice president of asset management for Orlando, Fla.-based Commercial Net Lease Realty Inc., a REIT specializing in retail properties, noted that to attract the attention of big players today, real estate professionals need to have the right stuff.
In today's market, that means possessing the right professional designations such as the CERTIFIED PROPERTY MANAGER(r) (CPM(r)) offered by IREM, and a current education focusing on the REIT's area of specialty. "You need to be very discipline-specific and much more of a specialist than a generalist to work for a REIT," Birdie suggests.
He adds that it is essential to be technologically savvy and be willing to constantly update your education. "Someone whose education is three years old in today's environment may not work," Birdie says. "To work for a REIT or a big player, a generic MBA may not be specialized enough. Your skills must be very current and specialized in order to attract the big players today."
Moreover, to get current, an increasing number of real estate professionals today are turning to home study education programs, such as those offered through IREM, as a way to update their skills in a convenient, time-efficient and cost-effective manner.
Real estate professionals need to broaden their base of skills, according to Birdie, to match the diversity of services being offered to clients of today's large real estate operating organizations. In addition to property management, obtaining skills in such areas as due diligence, asset management, general contracting, facilities management and management consulting will all help to increase the real estate professional of today's marketability quotient to large real estate firms.
Metamorphosis in the millennium The marketplace is changing rapidly and the next metamorphosis is just on the horizon. Today's career-savvy professionals are preparing themselves now to meet new challenges and to adapt to changes. For example, globalization is a reality. Borders are disappearing as economies and real estate markets are becoming interdependent. In the very near future, information sources for market intelligence are likely to improve and become more standardized, especially as technology becomes more sophisticated. It is likely that new, private market information sources will be available thanks to the development of data platforms and the spread of geographic information systems.
Stan Stanton, president of Kansas City, Mo.-based Huntress Real Estate Executive Search, offers property and asset managers the following advice in preparing for the trends of tomorrow:
* Kiss your headquarters office goodbye. "Employers are discovering that really dependable employees would be better off in an office at home," Stanton suggests. "Good area managers, for example, are busy bouncing around from property to property. Communications is where it's at and with laptops, cell phones, Federal Express and e-mail at employees' fingertips, employers don't need to incur the expense of leasing and furnishing expensive office space."
Stanton says instead, employers will more likely lease executive suite space on an as-needed basis in order to cut down on overhead. Large companies, such as construction-based companies that employ field project managers, have already begun to house these employees all week in corporate apartments or suites and fly them home or fly their families in for the weekend. "They need to get those buildings built quickly while providing the quality of service and product to their clients," Stanton says.
* Lease up to rack up opportunities. With an eye on maximizing profits, bigger companies are recognizing the value of superstar leasing consultants. Huntress' Stanton asserts that some of the bigger property management companies will have specialty leasing consultants who jump from property to property on a month-to-month basis with the sole objective of leasing up new or repositioned properties.
"Leasing specialists who are dynamite at leasing up properties will do very well and will earn high leasing commissions," Stanton predicts. "Big companies are recognizing this talent."
Kate Wood, an educational and curriculum development consultant, speaking at an education session held during the 1998 IREM/NAA Education Conference in Las Vegas, Nev., echoes Stanton's assessment that top leasing professionals are in high demand in today's market.
Sharing results of research she conducted with top residential leasing professionals in the industry, Wood notes one of the top concerns of real estate companies today is how to recruit and keep top leasing professionals. According to the research, a full 40% of those leasing professionals surveyed indicated that they are being recruited by other companies.
In order to keep these top leasing professionals, companies are recognizing that they need to provide them with opportunities for advancement. "A lot of innovative companies are coming up with interesting career tracks for leasing professionals so that if they don't want to become a property manager, there will be other opportunities available within the company," Wood explains.
The research also revealed that companies are putting their money where their mouth is. Increasingly, companies are paying their top leasing producers more for their efforts. The study indicated that in California, for example, salaries are increasing by 25%.
* Broaden your skill base to win big. Experience, experience, experience. Combined with a solid education and professional designations, experience is what will win real estate managers plum jobs.
"Employers are looking for people with broad-based education," Stanton says. "Anyone that has experience in specialty or niche areas, for example, will have a leg up in the employment market." He adds that, increasingly, companies searching for talent are requiring professional designations such as IREM's CPM designation.
* Perform to get paid. "Every function of the real estate market has become very competitive," Huntress' Stanton says. "For real producers out there, there will be lucrative compensation programs. Property and asset managers who have a better handle on portfolio management and who can get deals done will benefit from pay-for-performance and bonus-incentive programs."
In fact, Stanton predicts that companies used to paying in the 30th percentile of market rates will be paying in the 50th to 60th percentile. Top companies will need to jump to the 75th percentile in order to hold on to real producers and hire others away from competing companies.
Barry M. Barovick, national director of corporate real estate services for the nationwide EYKL Real Estate Group, explains in the organization's Online magazine, that the corporate real estate arena will undergo some important changes in the next few years. Real estate is fast being viewed as a capital-allocation issue that must be integrated with human resources, technology and other capital allocation spheres. Real estate practitioners will need to step up their asset and property management skills in order to keep up.
As an example, Barovick says, "Can a company operate effectively with much less space? With large blocks of just-in-time space? With no space? Will real estate costs drive more companies to think of telecommuting and other forms of virtual offices as more than a fad? Will office/hotels work? Can separate corporations get together to develop integrated solutions? Will a company be able to arrange for just-in-time offices of 100,000 sq. ft.?"
Barovick also predicts that real estate practitioners will increasingly be focusing their attention on the following changes:
* The corporate real estate work force of tomorrow is likely to consist of teams working with teams: a blend of vendors working in close partnership with companies' financial, human resources and technology leaders, as well as with real estate. There will likely be performance-based compensation. There may even be sharing of real estate-related services between companies.
* There will be different ownership mechanisms, such as companies setting up third-party holding companies, or ownership by an outside third party. Retailers and service stations, for example, that can bundle a geographically diverse basket of leases, enhanced so that bond buyers will find them attractive, may likely lead the way.
* As information technology becomes more widely used and easily accessible between corporate functions and divisions, benchmarking will become a more precise art. Real estate managers will be able to "slice and dice" corporate financial data in a variety of ways to determine how their function impacts overall profitability. They will also have better tools to forecast occupancy needs. In addition to analyzing the costs of carrying excess space, they will be able to analyze the costs of not having space available when needed.
* Companies whose leaders believe in the need for ongoing strategic plans and who are committed to updating them regularly will be better positioned to succeed, even in the face of volatile market conditions or changing business cycles. Real estate will play a key role whether a company is growing rapidly, undergoing a period of contraction, merging or acquiring another company, or preparing for a public offering.
The real estate marketplace is undergoing a major metamorphosis as the millennium fast approaches. In order to take flight and maximize the employment opportunities and career choices that will be open to them, today's real estate practitioners will need to take steps to prepare. Broadening their educational base; considering such alternative employment options as consulting, free-agent and training opportunities; and updating their skill sets to attract the attention of the big players and investors are all ways real estate managers can transform their careers and ensure that they will be ready for the changes ahead.
Buy In or Buy Out? Making the move from entrepreneur to employee can be a challenging one for real estate professionals. Not to mention a major career change. For Ken Goodacre, CPM, and John Combs, CPM, changing their company's structure through a merger and buyout, respectively, was a way to reinvent themselves and transform their careers.
In Exit Strategies for Real Estate Management Companies, by John W. Magnuson, CPM(r), Ken Goodacre, CPM, discussed the challenges he faced when he consolidated his 22-year-old firm, Ventura Realty Services, with privately held Eagle Western Management Co. A sole practitioner, he was finding it more and more difficult to compete due to consolidations and mergers in the industry.
In June 1995, Goodacre closed Ventura and moved himself and one other manager, along with their portfolio, to Eagle Western. The arrangement allowed Goodacre to focus on property management instead of on running the company, a welcome change, he says.
However, doing so meant giving up control. Goodacre found that he had to bend more than he was accustomed to. For example, he was no longer free to do residential management, as Eagle Western is strictly in commercial management. "I was chasing one owner for 20 years," he explains. "The first opportunity that came up a few months ago was an apartment property, and I had to refer it to a colleague."
Goodacre recommends, "For others considering a sale or merger, find a situation that allows you to do the same things you would do as an independent business owner, but under an umbrella that protects you and takes away the chores that stop you from being a better manager."
John Combs, CPM, now vice president of Insignia Financial Group's Western Division, in Irvine, Calif., made a move from private to public in 1995 when he sold his regional management and leasing company, O'Donnell Property Services Inc., based in Irvine, Calif., to Insignia Commercial Group. Insignia purchased the stock of the privately held company, and Combs became president of Insignia's West Division.
The change from a regional company with private ownership to a public company with a national platform took some getting used to. "When you're privately held, you know what's happening because you're part of the decision," Combs explains. "When you're part of a huge national public company, decisions are made that you read about in the paper."
The major issue for Combs was empowerment. For example, some companies allow property managers to write checks, but at other companies, checks can be written only by someone in corporate accounting. Issues like this affect people's daily work lives. Because Insignia's philosophy is not to change anything relating to the tenants, property, or clients, it empowers managers, allowing them to continue to operate as they did before the acquisition.
Combs says, "When a company is sold, it's not just a different name on the paycheck." There are changes in benefits and new health insurance forms. There are questions about employment dates and calculating vacation time earned and sick time accrued, investing in the 401(k) plan, holiday and vacation policies, the company's business hours, and many more issues.