CCIMs share ideas for improving profitability.
In today’s challenging economic times, commercial real estate professionals are at risk of losing business, particularly since real estate cycles tend to trail economic cycles. However, all hope is not lost just because the property investment market is in a holding pattern. There are plenty of strategies commercial real estate professionals can implement to help recession-proof their businesses during economic downturns.
“I went through the [recession in the] 1980s and purposely set out a market plan that would not have the boom-and-bust [nature] that comes with real estate cycles,” says Joe W. Milkes, CCIM, principal of Milkes Realty Valuation in Dallas. Milkes decided to focus his valuation and consulting practice on more-stable industry segments such as estate planning, litigation consulting, eminent domain, and other niche real estate areas that aren’t as affected by economic cycles, he says.
Commercial real estate professionals who don’t have a recession-proof plan should keep an open mind about broadening their business scope to help them stay afloat. From starting consulting services to gaining more market visibility, these CCIMs initiated creative ways to survive — and prosper — during a slow market.
Offer Consulting Services
Developing consulting services is one way commercial real estate professionals can keep steady business and income during slow times. “Offering consulting, getting paid for what you know, and adding value to your clients’ portfolios is a fabulous long-term business strategy,” says Todd D. Clarke, CCIM, senior consultant and chief executive officer of NM Apartment Advisors in Albuquerque, N.M. “In short, sellers, developers, and bankers all need problem solvers when a market is heading the wrong way.”
In this same vein, Robert E. Lee, CCIM, also tapped into his consulting knowledge as a way to keep steady income in a down market. A senior associate for the multifamily division of Colliers International in Los Angeles, Lee formed SIG Equity Holdings, a “virtual” consulting company, with fellow CCIMs in the Los Angeles area.
For Lee and the other CCIMs involved, the virtual company means acting as advisers to each other in a consulting capacity while still keeping their focus on their own primary businesses. When SIG Equity gets control of a deal to purchase or sell, “we look at our list of contacts in that market and engage the individuals who have the skill set to best achieve the project’s goals,” Lee says. It also allows CCIMs from all around the country to refer their clients to SIG Equity. They get paid as a referral if their clients end up investing equity in one of the group’s syndicated deals or in 1031 transactions. Plus, the extra projects help to build a strong and diverse portfolio, he adds.
“The key to having a virtual company is keeping the structure flexible,” Lee says. The group finds value-add assets such as multifamily and retail properties as well as self-storage facilities. Currently, they are rehabbing and repositioning large apartment complexes in Lexington, Ky., and Jacksonville, Fla., for an investor.
In High Point, N.C., Audie Cashion, CCIM, president of Alpha World Properties, revamped his business model to include consulting and real estate syndication services. Noticing that vacancy rates in his large warehouse properties were starting to rise, Cashion knew he had to think outside the box. While he had been offering both operational and financial turnaround advice to struggling businesses as part of his real estate services, in 2007, his small boutique firm began to offer brokerage, consulting, and business-turnaround services for a fee.
Cashion helps struggling companies rethink their business models, which includes determining the most profitable use of their real estate, he says. For example, he recently had a client in a unique class A headquarters/showroom facility that was looking to sell. To keep the existing furniture company in place, Cashion worked with the company and created various scenarios such as upgrading 80,000 square feet and leasing out part of the property or transacting a sale-leaseback and leasing out excess space. Cashion eventually “convinced the client to stay and will work with them on a sale-leaseback when the timing and market is right.”
Alpha World Properties offers a free one-hour consultation with a guarantee that prospective clients will get at least one idea they can use to solve their problems including bankruptcy, lagging sales, and decreasing profit margins, he explains. “If they want to come back for more, we do charge the fee for our skills and talents.” For those who want assistance, Alpha World performs a complete needs analysis and creates a campaign to help market the clients’ properties and non-real estate products.
Create New Divisions
Starting a new division within a company also can be a way to survive down cycles. Similar to offering consulting services, creating new service lines can identify new clients and sources of income.
In 2005, midsized retail brokerage Zifkin Realty & Development in Chicago formed Zifkin Realty Management, a new property management division that currently has about six employees. While the parent company continues to provide tenant and landlord representation, the management division was started because “we were anticipating a slowdown in the market and wanted to develop an avenue of business that would create a steady stream of income,” says Yvonne Jones, CCIM, CPM, executive vice president, principal, and managing broker of Zifkin Realty Management. “We also wanted to expand our scope of services so we weren’t losing any assignments because we couldn’t take on the management aspect of the asset,” she says. This has allowed the company to keep retail owners on as clients even after the initial lease transactions are complete.
The new division has helped to establish and maintain long-term relationships with real estate owners that might need future services such as refinancing and disposition assistance. “Too often the leasing transaction is forgotten three years down the road when a client still owns the property. By staying in touch with that client through management, it puts us in the forefront to either do the re-leasing and/or anything else the client may need,” Jones says.
In the three years the division has been open, the management portfolio has grown from 300,000 sf to nearly 2 million sf, and the company hopes to grow by 1 million sf per year, Jones says. The company has won additional leasing assignments and now has a leasing agent within the management group to handle all vacancies and renewals. “This [leasing agent] is helping to further increase revenues,” she notes.
Currently, the division is working on two retail portfolios totaling 18 properties and continues to develop strong relationships with attorneys and lenders. Zifkin also is using technologies such as online file management and a secure Web site so that “any property manager or leasing agent can access information remotely,” Jones explains. Clients also can access their management reports and property information through a secure online portal.
Even small boutique firms and solo practitioners can create new divisions. Thomas G. Morgan, CCIM, CIPS, investment broker/owner of CM Commercial in Salida, Colo., decided to start taking classes to earn his appraiser’s license. Only halfway through the process, Morgan currently works with a licensed appraiser and does fee-based appraisal work to create a consistent monthly income. While not completely buying into talk of an upcoming recession, Morgan still thought it was necessary to devise a plan as a “precautionary measure,” he says.
“Banks and the federal government always need appraisals whether the economy is good or bad,” Morgan says. It also increases his credibility with clients. For instance, when giving listing presentations, explaining market value, or negotiating a purchase/sale, if there is a disagreement about price, he can use his appraisal knowledge to give clients a credible recommendation on value.
Increase Marketing Efforts
A down market also is a good time to re-examine and rev up marketing strategies. Not only can it increase a company’s client base, but refocusing tech tools can help save costs.
Terence P. Coyne, CCIM, SIOR, senior vice president with Grubb & Ellis in Cleveland, believes that part of reworking his marketing plan means increasing his overall market “face” time. “By increasing my visibility, I’m creating a brand for myself,” he says. Through this, Coyne has branched out to new markets and audiences that may need his services in the future.
Coyne sees marketing as an investment rather than an expense. During a recession, most brokers will cut back on expenses, including marketing. “At times like this, I can negotiate better deals by putting money into my marketing efforts, which pays off in the future,” he says. With more visibility, Coyne’s future business will increase as more people find him through online searches, print ads, and speaking engagements.
For example, Coyne recently was hired to oversee the lease renewal of a 200,000-sf building in Salem, Ohio. The person who hired Coyne found him via a Google search. A client who wanted to sell an airplane hangar also found Coyne through an online search.
Aside from increasing his visibility, Coyne has found decreasing his pay-per-click campaign dollars to be a useful strategy. “By utilizing search engine optimization techniques, I can improve my site’s rank organically, rather than spending money to boost my rank,” he says. Making site improvements such as code, content, and structure edits internally also helps to save money. Coyne also added virtual property tours to his Web site. Now, prospective tenants can peruse the properties on their own time.
In Salida, Colo., Morgan also stepped up his marketing efforts to increase business. His ReferralRewards Program builds on referrals from existing clients. Every time a client or business associate gives him a referral, he enters their name in a drawing. “I work hard to provide clients with top-notch real estate advisory services and live by the motto, ‘a referral is the best compliment I can receive,’” he explains. In December, Morgan will hold a drawing for a client or associate to win a trip to Mexico.
Since implementing this program in April, Morgan has received three referrals. One was an 850-acre potential development project listing for approximately $4 million, while the other two were buyers. Having existing clients give him business is a big plus, Morgan says, adding that he also receives referrals from lenders and other associates. “This [program] was the quickest way to generate new business.”
The referral can be for any type of commercial real estate anywhere in the U.S. “My company typically specializes in national commercial investment sales, primarily NNN and retail, but we also have a large network of commercial brokers who can handle any type of commercial transaction,” Morgan says. He also will consider residential referrals since his company has residential brokers in its network who can service these deals.
Whether a recession is coming or not, having a “just in case” business plan can be very beneficial in the long run. For commercial real estate professionals, finding the right path to steady income and consistent business ultimately helps them weather the down cycles that are an inevitable part of real estate. “What I do goes on in good times or bad,” Milkes says. “I have a steady flow of projects because if one area is slow, the other isn’t. I need to keep an iron in the fire at all times.”