Like the long-distance runner preparing for the big race, today's real estate company executives are lacing up their corporate sneakers, following a rigid regimen of strategic planning, and adopting a millennial mindset that will take them to the winner's circle. Yet, before they make it to the finish line they'll have to jump several important hurdles. Each one is essential to their survival: attracting and retaining quality employees; identifying and servicing their customers better; managing technological change; and developing astrong sense of leadership.
The business world is changing at an unbelievably accelerated rate. To keep up and, indeed, to survive, real estate organizations must create a vision that includes ways in which they can address and rise above each of these challenges.
Winning the talent war Attracting them. Finding them. Winning them. Satisfying them. Keeping them. Ask any employer today and they'll tell you that attracting and retaining quality employees is the No. 1 challenge for their organization.
Big change is brewing in the workplace again and today's employers are finding themselves trying to attract a new breed of worker. Today's employees are flexible, diverse, entrepreneurial and self-reliant. Their lifestyles are changing and they demand work situations that will fit into those lifestyles.
The lowest unemployment rate in history, coupled with a new breed of employee, has resulted in a renewed focus on human capital. O. Gene Powell, CPM, president of Gene Powell and Associates and a frequent public speaker on the subject of employee retention, had this to say on the subject: "Employees today are looking for places where they enjoy their work, will be challenged and promoted, and can have access to learning situations.
"Today's businesses are only now beginning to study why employees are leaving," he continues. "The fact is that 85% of employees leave because of personality conflicts, not because of an inability to do the job. One third of them leave within the first year. Those are lousy statistics."
Part of the problem, according to Powell, is that real estate businesses have never taught managers how to hire good people. He estimates that 90% of the hires in the property management business are not accomplished through formal human resource departments, but rather directly through property managers or assistants who have not had training in hiring practices.
The key to improving employee retention, Powell says, is to create an environment that makes employees enjoy what they're doing.
"Employees who are happy in their jobs don't leave them, and they tell others so you don't have to spend as much time recruiting," he acknowledges. "Employee loyalty has largely disappeared because loyalty hasn't been forthcoming from the employer side. Those employers who treat their employees like gold don't need to go looking for good people."
Appreciating employees and respecting their time are two simple ways employers can help keep talent around. Other methods some real estate companies are implementing today include offering flex time, longer vacations and opportunities to learn.
"As a whole, our industry is lagging behind other industries in the retention area," Powell says. "We need to take a more aggressive stance when it comes to attracting quality talent. We've tended to be more reactive than proactive and that must change."
While most companies today agree that they are scrambling to attract the best of the best to organizations and keep them once they're there, a recent poll of multifamily human resource directors, conducted by Los Angeles-based CEL & Associates Inc., came upon an interesting conclusion. The poll revealed that most human resource directors at multifamily housing firms do not offer any type of career planning, and barely half conduct exit interviews to determine why employees leave.
Results from the 1999 National Human Resources Survey also indicated that the average employee turnover in 1998 was 8% for executives, 24% for managers and 45% for staff members. In the last category, some respondents reported a turnover rate as high as 85%.
In addition, while the industry as a whole is beginning to recognize the bottom-line benefits of training, 56% of the multifamily firm respondents said their company still had no formal training program with specific training plans for each employee. Only 2% indicated that they had a director of training or a training coordinator at their company. At each responding company, according to the survey, the average annual training allotment was $1,500 for executives as a group, $873 for managers as a group and $514 for staff members as a group.
To retain employees, apartment companies may also need to change their compensation and benefits packages, according to the council's report. The report urges remuneration for regional managers, and those higher up, based on company-wide performance - at least in part - as opposed to in-region performance alone.
Innovative compensation, bonus and award programs are carrots that real estate companies are dangling in front of today's top talent. For example, Watson Wyatt's "Stay for Pay Plan" is aimed at improving retention by providing substantial cash bonuses to targeted employees as they attain a specified tenure milestone.
As Charlie Commander, senior retirement counselor at Wyatt, notes, "More and more, employees are acting like free agents - chasing the best paycheck from job to job. We invented 'Stay for Pay' as a way to help employers hold on to their most valuable employees without paying an arm and a leg in current compensation or stay bonuses."
Stan Stanton, president and CEO of Kansas City, Mo.-based Huntress Real Estate Executive Search, confirms that today's top talent expects to be compensated for personal performance above and beyond their salary.
"If they go the extra mile for your company, they want to be compensated," Stanton says. "Companies are responding by establishing actual quantitative and qualitative benchmarks so that specific goals can be set and reached. When the goals are reached, the employee expects to see that reflected on pay day."
Flex time, child care and any benefit that will help enrich the employee's lifestyle and family trend will be important ways of attracting talent as the industry approaches the millennium. As Stanton says, "Today, employees understand that they can't afford their BMWs if both husband and wife don't work, so they're looking for flex time and opportunities to better manage their lifestyles.
"Today, the base salary is a given," he continues. "If it's not competitive, good employees won't even bother submitting a resume. They're looking for companies that have a solid reputation for growth, opportunity and teamwork. If your company has a reputation for high turnover or if it has hands-on, controlling, look-over-your-shoulder kinds of managers, you'll have a difficult time attracting class-A talent."
When it comes to locating quality talent, Stanton believes many companies are still attempting what has proven to be a short-term fix. "They're robbing their neighbor's chicken coop to avoid paying any fees," he asserts. "The fact is that the really good people who are doing a great job for the competitor aren't looking in the paper for a job. In order to make a move, they need to be offered a much better deal."
In exchange for a very competitive compensation package, Stanton says real estate companies are looking for candidates who possess top-of-the-line experience and education.
"We're big believers in professional designations like the CERTIFIED PROPERTY MANAGER(r) (CPM(r)) designation," Stanton acknowledges. "It's a real comprehensive program that symbolizes experience and know-how. Employers recognize that employees who have this kind of designation will save them money in the long run."
A survey conducted by Watson Wyatt Worldwide, "Creating Value through Innovation in the 21st Century," confirms that to meet the employee-retention challenge, executives are looking for employees who have the ability to generate new ideas and to provide leadership.
Other hot skills in demand include knowing how to access the power of the Internet, the ability to speak multiple languages, innovation and creativity, managing change, knowledge sharing, and teamwork.
"To some extent, technology today is a neutralizing factor, not a competitive one," says John Parkington, senior consultant with Watson Wyatt. "The only competitive advantage that can't be copied is intellectual capital. Five to 10 years ago, innovation was a topic of concern only to small companies or those responsible for delivering the next generation of technology.
"Today," he continues, "businesses of all sizes and industries recognize the need to infuse more ideas, creativity and innovation into their organizations."
Customer is king Employees aren't the only constituency real estate company executives have to win over. Perhaps more so than in any previous decade, the year 2000 will bring with it a concentrated focus on the customer. In fact, the industry's bumper sticker in the millennium will no doubt read, "Service and a smile wins by a mile."
Winning companies will be those that create a compelling experience for customers. The millennium will bring on the decade of "Me Inc.," where customers will not tolerate the average and will expect their service to be immediate and of the highest quality.
Who exactly is the millennial customer for real estate management firms? First and foremost, the customer - tenant, owner or vendor - is time-strapped. On a daily basis, they are fighting the shrinking American day. As Annetta Miller notes in American Demographic magazine, "Harried baby boomers will create a time famine for themselves by working more hours and committing to more family and community obligations. What they will demand is the best service so they can spend more time with family and friends and cultivate other interests."
The real estate companies that can simplify their customers' lives and help to solve their problems will help ensure their own success. Perhaps no segment of the population will be more loyal to companies that serve them and save them time than the growing ranks of single mothers in this country.
A U.S. Census report released last year found that for the first time in 60 years, the majority of first children (53%) were born to or conceived by an unmarried woman. Sixty years ago, that figure was only 18%. Yankelovich Partners reports that two-parent households with parents aged 30 to 44 are going to decline by 4 million in the next 15 years.
Single mothers will be looking for extended hours or services that can save them time they could spend with their children. Grocery deliveries to the office, oil changes in the company parking lot, services that will pick up laundry, babysitting services, homework volunteers and computer labs for children will all win over the single-parent customer.
The 21st Century real estate customer will be increasingly older, with a sweet tooth for an easier life. Nationally, nearly 6% of boomers have already retired, and many others have opted for part-time jobs. The Census Bureau predicts that by 2030 the total number of retirement-aged citizens will hit 65 million. They represent a new wave of mobile retirees - those who settle somewhere outside their home states. According to a 1996 survey conducted by the Del Webb Corp., these retired wanderers will flock disproportionately to the Southeast and the Rocky Mountain states.
Kathleen McKenna-Harmon, CPM, vice president of marketing services and training for Apartment Search (AMSTAR Group) and co-author of The Resident Retention Revolution, published by IREM, suggests that one key challenge of the multifamily manager will be to make their properties attractive to boomers.
"The 18-to-24 age group we've been used to simply isn't going to be there," McKenna-Harmon says. "We are going to have to make changes to our older properties to appeal to the new breed of apartment renter."
McKenna-Harmon also suggests that changes in terminology may be a good place to start. "Senior is a word that just won't wash with today's baby boomers. They won't move into any property with the name senior on it."
She finds that the baby boomer renter has a forever-young attitude. "They're swinging seniors who are very wealthy and who'll likely be working at home, at least part-time. They're not necessarily going to give up their home but, instead, acquire a second one as a retirement villa. What is clear is that they are going to behave very differently from their parents."
"Women who worked all their lives at careers now want to be June Cleaver," McKenna-Harmon asserts. "They want customized, roomy kitchens and nostalgic porches. That may mean you have to tear down the wall between the bedroom and the living room and make it into a great room."
Real estate managers will also have to be much more cognizant of service-delivery time. As McKenna-Harmon says, "We're going to have to analyze our own function and appreciate how much our customers value time."
These active boomers will also be impressed by extra service, particularly when it comes to their second-biggest investment - their car. Offering on-site repairman call lines, oil changes, detailing, and car washes may go a long way in retaining the new breed of apartment renter.
Expensive, state-of-the-art exercise rooms, yoga classes, spirit rooms and health-related programs are all amenities the management community will be considering offering the boomer renter, the most stressed group in the industry.
It is ironic, too, that just as we move forward into a new millennium, the 2000 customer will be looking back to the good old days. Restoration Hardware, a hot new retailer that specializes in nostalgic knickknacks, obscure hardware and old-fashioned cleaning products, can attest to this growing trend as it watched its net sales increase by 113.9% to about $200 million in 1998.
Restoration Hardware's core customers are 35 to 55 years old, educated, and earn more than $75,000 per year. They are a group that is increasingly fixated on the idea of a traditional home life. In fact, 80% of boomers say they'd like to see a return to more traditional standards in family life, according to a 1998 Yankelovich Partners survey - a marked increase from the 56% who said so in 1997.
The "entertainmentalization" of the retail industry will also continue in the 21st Century as consumers continue to transform the shopping experience from the ordinary into the extraordinary. More retailers will follow the lead of Wal-Mart, which staged a Garth Brooks concert last November that was videocast live on televisions in the retailer's electronics department nationwide. Live stage events, videos on large screens and CDs as giveaways will become more commonplace.
"As far as retail is concerned," says Alan Alexander, CPM, senior vice president of Scottsdale, Ariz.-based Woodmont Real Estate Services, "the economy is good, people are affluent and consumers want service, convenience and ambience."
While this is good news for the larger-box tenants, it signals trouble for the small- and medium-sized, mom-and-pop tenants. Retailers will have to work harder in the next decade to find more niches for these smaller tenants.
"The mom and pops can't compete with the IMAX theaters and virtual-reality facilities on an entertainment level," says Alexander, "but they can win over customers with their decor and the right product mix.
"The key to retailing in the millennium will be to become more interactive," he continues, "and any merchant can do that with the help of in-store video presentations, frequent changes in merchandise and home-town gestures, such as providing coffee to shoppers in the store."
With the Internet breathing down their throats, retailers will certainly have to be more creative and innovative to retain the 2000 shopper. New types of retail venues will pop up in the next decade, including urban villages, renovations of neighborhood streetfront retailing and ethnic malls, according to Richard F. Muhlebach, CPM and president of TRF Management Corp., AMO, based in Bellevue, Wash. As an example, the first enclosed ethnic mall just opened in the Seattle area. The Asian mall includes a 30,000 sq. ft. specialty supermarket and a host of Asian restaurants and fashion stores.
Speaking at IREM's Mid-Year Conference on the effects of the Internet on retailing, Ted Kraus of Mercerville, N.J.-based TKO/Real Estate Advisory Group summed up the current state of retailing this way: "Retailing simply stinks. No consumer enjoys shopping anymore because the retailer is making it an unpleasant experience. When you go to the regional enclosed mall, it's boring. After awhile, if you've been to one, you've been to them all."
Kraus suggests that retailers have to improve their record on customer service in order to survive in the next decade. "The retailer has to fight back by making the experience more enjoyable for the consumer."
The battle won't be easily won, according to Kraus. More and more retailers are taking advantage of the e-commerce opportunities available through the Internet. This year, he reports, commercial transactions on the Net topped $750 billion.
Kraus attributes the problem to lack of both knowledge and service. "The trouble is the conventional retailer doesn't know how to be online and the online retailer has no idea how to service the customer," he says. "Retailers are beginning to market themselves better online, but they are competing with themselves."
That scenario, however, is slowly changing. For example, retailer Eddie Bauer just changed its policy so that merchandise bought online can be returned to a physical store. The retailer also upgraded its website so that a shopper can click on a pair of pants on the monitor and see exactly what it will look like in a number of available colors.
"Clearly, we're seeing online retailers and their offline counterparts making more of an effort to work together," says Kraus. "The bad news is that we're going to see a lot of retailers go out of business because of incompetence. The Internet is making the level of tolerance for incompetence lower every day."
Kraus also suggests that retailers who have survived solely on the basis of price will fail in the 21st Century. And he adds, "Retailers are going to have to offer a depth of merchandise, better service and more convenience to compete."
Making technology work If it's true that the new millennium will signal a battle for the customer, then it is equally true that it will be won with the help of technology. With business moving at DSL speed, more than ever before, it is essential for real estate organizations to stay highly connected. Those that still don't know the difference between a microchip and a potato chip won't stand a chance in the 21st Century.
Indeed, one of the most critical decisions facing real estate organizations today is determining the best way to use technology in support of real estate management. Scott Morey, partner with E&Y Kenneth Leventhal in Chicago, suggested in the July/August 1999 edition of Journal of Property Management that some of the key technology issues will be how a company can keep pace with technological change, how a company will perform e-commerce transactions, how a company can manage information globally, and how it will utilize technology and systems to obtain a competitive edge.
TKO's Kraus suggests that the growth of the Internet will significantly affect real estate businesses in the future. Already, it is estimated that there are more than 60,000 commercial real estate professionals using the Internet for business on a weekly basis - a number that is growing by 25% per year.
Leading Internet analyst Forrester Research of Cambridge, Mass., confirmed the growing trend toward e-commerce in a recent issue of Time magazine. The article acknowledged that, based on results of its "Resizing Online Business Trade" report, business-to-business e-commerce will hit a total of $1.3 trillion by 2003, accounting for 9.4% of total U.S. business sales.
The challenge for real estate management companies in the next decade will be to learn how to manage technology as opposed to allowing it to manage them. Computer systems, hardware, software and other forms of technology all must help real estate professionals do their jobs more efficiently and effectively.
Apartment firms are already beginning to experiment with electronic forms of payment and creating community websites that provide consumer information to their residents. For example, as reported in Apartment Finance Today, one large Kansas City, Mo.-based property management firm will soon roll out a comprehensive e-commerce capability that linksapartment residents to the tenants of the malls the firm manages.Fairfield Pro perties LP, a national property management company representing over 38,000 apartment homes, also is using technology to its advantage. Since shifting about 50 properties to apartments.com in the middle of 1998, the company reported that about 40% of all e-mail, fax or phone leads generated each month by apartments.com are converted to leases. Apartment hunters are able to customize their searches, and companies are able to post an unlimited number of photos in the ads, which cost between $70 and $150 - substantially less than traditional advertising media.
In addition to web-based activities such as e-mail messaging, credit reports and company websites, the property management industry is now experimenting with web-enabled software that allows for web-based data entry, data warehousing, data processing and reporting capabilities.
With its new system, Yardi Voyager, Santa Barbara, Calif.-based software vendor Yardi Systems allows property managers, investors or clients to remotely access a database from wherever they are. It dials into a master database and allows them to run any report within the database that they are authorized to run.
Perhaps the most important effect technology will have on the property management industry, moving forward, is that it will increase clients' response-time expectations. Speaking at the Multi Housing World Conference earlier this year, Steven Buck, CPM of Orlando, Fla.-based ZOM Residential Services, explained that interfacing with tenants increasingly will be done online.
"Real estate managers will have to prepare for higher response-time expectations for service," Buck says. "Owners, too, will be able to access downloaded streaming video of properties online allowing for better and faster decision making."
However, Buck cautions that despite all the benefits the bells and whistles of technology can offer, it still cannot instill quality service or close a sale.
Not only will property management companies need to keep up to date on the latest technological innovations for their own companies, but also they must understand significant telecommunications trends in order to meet the service needs of their buildings' tenants. Today that means providing tenants with a choice of competitive services and the flexibility of changing service providers. Managers and owners who do not provide these services increasingly will find themselves with empty buildings because tenants will move to other properties that can accommodate their service needs and help operate their businesses more efficiently and effectively.
Leading the pack Futurist and management expert Edward Lawler once stated that while managers do things right, leaders do the right thing. As they come face to face with a new millennium, owners of real estate management companies will understand that their primary task is to create conditions required for a team of professionals to exist, cooperate, learn and succeed.
A vision that creates values and principles drives business strategy today. The successful real estate firm owners of the millennium will be true leaders and visionaries. Their top challenges will be to create agile organizations where changes can be implemented effectively, accelerating new service development, developing successful alliances, and creating innovative ways to empower employees with knowledge.
According to a 1999 Innovation Survey conducted by Watson Wyatt Worldwide, top executives must learn to lead differently if they want their employees to think and perform better. The study found that today's business leaders must develop the right mix of skills so that they can coach and mentor employees effectively.
A recent study by Manchester, a career management and consulting firm in Jacksonville, Fla., found that companies are investing more in coaching and developing employees as a way to retain them in today's tight labor market. The firm surveyed more than 300 organizations and found 59% offer coaching or other developmental counseling to their managers and executives. Another 20% said they plan to offer such coaching within the next year.
Today's company executives need to be more than just the CEO. They need also to be an executive coach and a change agent. In the July 1999 issue of Training Magazine, Donna Caley, president of CEO Consulting: Creating Effective Outcomes, in Del Mar, Calif., acknowledges that changes in the business world have resulted in an emerging need for people who are interested in developing their abilities to grow and make changes within an organization.
Change agents know how to blend working styles, bring together disparate employees and policies, and chart a course for the future. Companies are looking at what they need to do to get their employees to the next level so the organization can get where it needs to be in the next five years.
Realizing that, to be successful, real estate companies need more than managers - they need leaders - IREM developed the advanced-level course, "Leadership for Today's Real Estate Managers." The IREM course teaches today's real estate executives how to lead an organization, manage change, create a successful corporate culture, and build effective teams.
Moving forward into the next millennium, real estate firms will have to sharpen their skills and prepare for battle. Those that can successfully manage the challenges of employee retention, customer service, technology management and leadership development will emerge victorious - winners among a very crowded field of real estate providers. Those who can't will be left behind.
By demonstrating a strong commitment to targeted education, strategic planning and organizational leadership, real estate firm executives will be well prepared to rise to the millennium's challenges.