Latest / Icons of DC Area Real Estate / Charlie Hewlett- Strategic Thinking for Real Estate Operators (#109)

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Charlie Hewlett- Strategic Thinking for Real Estate Operators (#109) · Icons of DC Area Real Estate

• 0:09
  Speaker A: Hi, I'm John Koh and welcome to Icons of DC Area Real Estate, a one on one interview show highlighting the backgrounds and career trajectory of leading luminaries in the Washington, DC area real estate market. The purpose of the show is to highlight their backgrounds and their experiences experiences and some interesting stories about their current business as well as their past, and to cite some things that you might take away both from educational standpoint as well as lessons learned in the industry and some amusing and sometimes interesting background stories. So I'm hoping that you will enjoy the show. Before I introduce my guest, I'd like to share that both this podcast and the community I started in 2021, called the Iconic Journey in CRE, is now part of a new nonprofit organization with that same name. The new company will offer opportunities for sponsorship to grow the community both in membership and in programs. It also allows you as listeners to show your appreciation for this podcast, which has delivered episodes twice monthly since August 2019 with a charitable contribution. Transitioning the community and podcast into the nonprofit organization is underway. The community, which is open to commercial real estate professionals between the ages of 25 and 40 years old, is currently up to 65 members and growing. If you would like to learn more about either joining the community or contributing to the podcast, please reach out directly to me at John coenterprases.com, separately, my private company co enterprises. Now we'll focus only on advisory work for early stage real estate firms and career counseling. If you have interest in learning more about its services, please review my website@coenterprises.com. Dot thank you for listening. Thank you for joining me for another episode of Icons of DC Area Real Estate. My guest for today's show is Charlie Hewlett. Charlie is managing director of RC Elco, which is an advisory firm for real estate companies as well as investors and institutional investors. Approximately a year and a half year ago, I interviewed Adam Ducker, who is the CEO of Rcoco, and the reason I wanted to bring Charlie on is that he just finished his third edition of Strategy for Real Estate Companies, a book that he and at the time the first edition was written by his mentor, Chris Lineberger, and then the second edition was co written with Gotti Kaufman, who is the current chairman of the company. But Charlie did this edition, and it's basically an update since the 2008 global financial crisis. This book is probably the only book out there that covers strategic planning for real estate companies per se with what he calls the Parthenon of strategies, and it's really worthwhile looking into the book. But Charlie talks about his background and his growing up in the Boston area and learning real estate through his hands, basically, and working with his parents properties, went to Brown University and then decided he'd go into retail. That didn't suit him. And then he pivoted and joined RC Elco here in Washington, DC, and has been with them ever since. So he's gone through the 1990s, early issues, and then, of course, all the way through the global financial crisis and the pandemic. So he's seen a lot of volatility in the industry, and he talks about how he recommends strategies for his clients accordingly. So without further ado, please enjoy this wide ranging conversation with Charlie Hewlett. So, Charlie Hewlett, welcome to Icons of DC area real estate. Thank you for joining me today. As you know, I've interviewed your current CEO, Adam Ducker, last year, and we discussed the company and its growth. You and I met several years ago through Gotti Kaufman, our c O's chairman, via Uli, which we all belong to, and subsequently engaged you to help my employer at the time with a market feasibility study that we worked on since then. I read the first edition, well, maybe the second edition of your book, this strategy for real estate companies, and used it as a guide to assist my advisory clients, which I found very helpful. Before going into the, discussing the third edition of the book in some detail, I'd like to understand your current role at RCLCO, the high level backstory of how and why you wrote the book, and then we'll go into your origin story.
• 5:36
  Speaker B: So go right ahead. Sure. Well, yeah, it's good to see John.
• 5:39
  Speaker A: Thank you, Charlie.
• 5:40
  Speaker B: Appreciate the opportunity here. So, yeah, my current role here, I'm a managing director and one of the five owners of RCLCO. Our history goes back to Bob Lesser, who was the Robert Charles Lesser of the RCL company that we now call ourselves part of the firm back in the mid sixties. And so I'm one of those odd dinosaurs, even for my generation, been with the company for 35 years, which is sort of odd to say out loud, but, yeah. So I spend half of my time in what we call our real estate economics group, and that is market and financial feasibility for real estate projects all over the country. So we work on probably 300, 400 engagements all over the continental United States, do some work globally, but most of our work is in the United States, and the other half of my time is concentrated in our management consulting group. And so that is strategy planning, but just for companies in the real estate space. I think that is one of the unique advantages that we bring to the table as management consulting company to real estate companies is that we are first and foremost, market participants. We understand the business, we understand the language, some of the unique challenges, and we think that we can bring that experience to bear in our strategic planning engagements with real estate companies.
• 7:06
  Speaker A: And so that is the foundation of the book.
• 7:10
  Speaker B: It is indeed, yeah. And I think that, I'm pretty sure, because I've searched, this is a fairly unique body of work. I haven't run across anything else that talks about strategic planning, and certainly not for real estate companies at this level of detail. The book is intended to be a primer and a guide for companies to think about how to design a well rounded strategic plan that will stand them in good stead through all phases of the real estate cycle. And I think the reason why strategy planning is so important in this industry is the extreme cyclicality of the business. I'm sure your audience here isn't going to be surprised to hear me say that real estate remains one of the most cyclical businesses in the US economy. It has higher highs and lower lows than energy and technology and all of these things. And so making sure that you have a well rounded and articulated strategy that helps you deal with all the different phases of the real estate cycle is critical for real estate companies. So that was really what compelled me to write the second edition back in 2008 and then refresh that just this January in 2024.
• 8:26
  Speaker A: What I'd like to do, Charlie, is go back to the origins of the thought process when you originally wrote the book, and even when the first edition was written by your mentor, Chris Lineberger, to really understand, you know, why I even came about. I mean, we had management consulting going back 50 some years, and then other companies strategy. Of course, we have management consulting firms that do that all the time around, longer than your firm. But I'd like to really get it, dive into the real estate. You talked about cyclicality, but I want to get into kind of where that all came. I'm sure clients came to you and said, God, we're struggling and we need some help with this thought process. Can you help us? And then that's maybe how it evolved.
• 9:06
  Speaker B: I don't know, but we'll find out. Yeah, sure. Well, you mentioned Chris Leinberger, my colleague, former colleague at RCL company, and still my good friend today. And Chris was a Harvard business school graduate with a concentration in strategic planning. So when he joined RCLCO in the late 1970s, he brought strategic planning to the business. So he really was the originator and creator of strategy for real estate companies as I knew it. And I had the privilege of apprenticing with him. And like most things in life, stuff happens, and life takes twists and turns. And so I became his right hand person in the management consulting practice and then learned and working with Gotti Kaufman. Then thereafter, after Chris left the firm and went on to do other things, continued to take Chris's foundational work and improve upon it, I hope. I've asked Chris, I think he thinks so, and bring it current. And so, again, it was really the genesis was Chris's original work, and then seeing the need in the business. Nobody was talking about the unique aspects of real estate and why strategy for real estate is different. I mean, Michael Porter and all of these great deep thinkers about strategy in general, but no one was talking about real estate and how different that business is.
• 10:30
  Speaker A: We could dive into that in much more detail later. But let's now go back to your origin story, Charlie. Where did you grow up?
• 10:39
  Speaker B: Right, so first the earth cooled and the dinosaurs running out. I grew up outside of Boston, and I was in private schools in the Boston area. I went to Brown University down in Providence, Rhode island. So decidedly a New Englander.
• 10:55
  Speaker A: What did your parents do?
• 10:56
  Speaker B: My father was involved in the stock market. That was his career. He was actually one of the early adopters of the mutual fund concepts.
• 11:04
  Speaker A: Oh, really?
• 11:05
  Speaker B: Yeah.
• 11:05
  Speaker A: Was he with Fidelity or.
• 11:07
  Speaker B: Well, no, he was with Payne Weber originally. He started a branch down on his own with a Payne Weber partner. The story that I was told from my father is that he and the partner who was at Payne Weber, they flipped a coin, and one person stayed at Payne Weber to trade the accounts, and the other person went outside to raise the funds. And really, it was kind of like the first mutual fund giving small investors access to institutional investing in the market that wasn't available. And, of course, fidelity and others, I'm not saying they copied it, but came up with the idea concurrently. And you know the history anyways. And my mother, we like to describe her as a professional volunteer. She could have been a CEO in the 1950s and sixties if women were invited to be so, but she was first and foremost a homemaker. But she was the chair of the board and president of a number of important philanthropic and charitable organizations, Boston Children's Service association, the Lyric Opera of Boston, blah, blah, blah. So she had a full time, she had two full time jobs.
• 12:07
  Speaker A: How did they influence you as far as your thought process?
• 12:11
  Speaker B: Well, I think the most important influence they had on me was in real estate. So they were small time investors.
• 12:18
  Speaker A: Oh, really? Okay.
• 12:19
  Speaker B: Owned 30 or 40 multifamily units in a pretty, then sketchy neighborhood called Mission Hill in Boston. My sister and I, as tweens and teenagers, were sent to the properties to do renovations and construction and vacancy units. And the deal was we would hire professional plumbers and carpenters and electricians under the condition that we could be their helper. So we would watch them do one or two bathrooms and then we would do the next one. So I kind of learned by doing. But when I graduated from Brown, I figured I probably should get a job that didn't involve wearing a tool belt or having a name tag. And so I dabbled in retail, originally here in Washington. I moved here in 1985 with May department stores, which was hex before it was subsumed into the Macy's lawn. Right.
• 13:13
  Speaker A: What attracted you to May?
• 13:15
  Speaker B: They paid me an ungodly sum of money. They paid me $22,500 to move to Washington, DC and be an intern in their buying department. Anyways, fascinating experience. I ran, I helped run the men's store out Texas corner. It was a great experience for a 22 year old kid running a $5 million business. But I think retail is like hospitality or the restaurant business. You either love it and it's in your blood or it's not for you.
• 13:47
  Speaker A: My dad was a 30 year retailer.
• 13:49
  Speaker B: Yes. So, you know, so after a couple years of that, I decided that that wasn't for me. And I started looking for things to do, and I wanted to get back into real estate because that's where I had some experience. And so I reached out to a classmate of mine, and he said, oh, well, I just heard that they opened up this office of Robert Charles Lesrow and company in Washington, DC. You should go talk to Pam Manfrey, who was then the partner who had moved out from California. So I was the second full time hire in the Washington, DC office of RCL Co. Back in 1987.
• 14:23
  Speaker A: Was Chris running the office then?
• 14:25
  Speaker B: No, Chris had migrated to Santa Fe. He had been in Los Angeles for a long period of time. Bonnie Kaufman actually had helped to the east coast for some, you know, some period of time. I don't know, it was six months or a year to sort of get the office started. And then Pam was the partner and still a dear friend of mine to this day, who moved from our Newport beach office to then be the full time partner in Washington, DC. And I think that was 1987. Yeah.
• 14:50
  Speaker A: What was RCL Gluco doing at that point? 1987?
• 14:53
  Speaker B: Well, back in the eighties, information was hard to come by. It's very different than today, where you can go, go on and log on and get all kinds of data. So we were often being hired by real estate developers and home builders simply to get information on what was happening in their competitive market, because it just wasn't available. And then the business evolved over time.
• 15:14
  Speaker A: So primary research is what you were.
• 15:15
  Speaker B: Doing there, kicking the dirt and talking to homebuilders and sales agents and gathering information, compiling, yeah. And then, of course, helping them think about what to do with that. And as the business evolved and data became much more ubiquitous, our model changed. And we did have a, we did come to a fork in the road where we had to make a decision whether we wanted to be costar like or, you know, and be in the data business. And we decided, no, we don't want to be in the commodity data business. We want to be able to access the best information available in the marketplace and apply that to our client situation. So we stayed above, above the data collection and aggregation, and that has served us well.
• 15:57
  Speaker A: You jumped over one piece of experience that I read about. Maybe you could tell me about it. You were apparently one point a home builder in Boston.
• 16:04
  Speaker B: Well, that goes back to my days in Boston and working in Mission Hill, and then through high school and college, I ran construction crews. I didn't know it at the time, but I was a value add general contractor.
• 16:15
  Speaker A: Oh, okay.
• 16:17
  Speaker B: So I had family connections who were buying homes in the Boston suburbs.
• 16:21
  Speaker A: Got it.
• 16:21
  Speaker B: I would hire a crew of ten or twelve, and over the three months we would.
• 16:26
  Speaker A: Was this right after Brown?
• 16:28
  Speaker B: It was during high school and through high school. Through college, yes. Oh, okay.
• 16:32
  Speaker A: I didn't realize it was that early.
• 16:33
  Speaker B: Yeah, that was, that was my real estate orientation, basically. Yeah. Yeah.
• 16:38
  Speaker A: So what made you pivot from being out in sticks and bricks and wanting to sit behind a computer? Or at that time, maybe it was computers were early at that point, when, 1987.
• 16:48
  Speaker B: But, well, you have to remember back to the, back to the mid 1980s. I mean, real estate wasn't a true investment class and wasn't, quote, professional the way that it is today. I mean, now we have global capital and massive companies that have billions and billions of real estate investments under management. Back then it was, you know, it was a bunch of moms and pops and it was a bunch of entrepreneurs and developers and builders and, well, it.
• 17:18
  Speaker A: Was the early phase. The reed industry existed, but it was very limited at that point. So we had a, and there was institutional investment. I worked for prudential back in the late seventies, early eighties, there was an institutional market, but it wasn't anywhere close to where it happened in the nineties, obviously, after the crisis of the early nineties. And so talk about that time a little bit, 87 through 91, that period of time and what you guys were working on.
• 17:48
  Speaker B: Well, sure. Well, I mean, the late eighties were go go period. Of course, people who haven't been through the 91 downturn, that was one of the most severe downturns in real estate, not necessarily the economy. I think in many ways it was probably more painful than the great financial crisis for real estate. And people don't remember.
• 18:14
  Speaker A: And the pandemic, even, for sure.
• 18:16
  Speaker B: Yeah, the pandemic at the end of the day turned out to be a slight hesitation and then a real boom period, at least for Franklin, many segments. You didn't want to be in the office market, of course, but if you were in multifamily, if you were in industrial, if you were in data centers, if you were. Yeah, exactly. It was actually a boom time, which is odd, given the terrible experience that we all went through. But back to 90, 91, that was awful. And we were all sitting on our hands wondering if we were going to have jobs. So it was a tough time.
• 18:49
  Speaker A: How did Rclco make it through that time?
• 18:51
  Speaker B: Well, I do remember that those of us in the Washington office said, well, instead of firing one of us, why don't all of us take a 30% haircut? And if we do, okay, we'll earn that money back first. And so, you know, that's how we actually kept the team that we had at the time, which was still small. It was five or six people, but nonetheless. And I remember my former colleague Len Bograd, who, you know, and is no longer with us, unfortunately, wonderful guy. He had signed on to the company, I think, six or eight months before the downturn happened. And Chris Leinberger at the time said, oh, we've done great as a company through lots of downturns. You shouldn't worry. And like, oh my God, six months later, we were all wondering whether we were going to fold. It was very difficult and challenging.
• 19:36
  Speaker A: So let's translate that time to this corporate advisory business. So you're looking at companies in distress, and they were in deep distress. So I was with the BF Saul company in 1990, from 1985, 685, but through 92. So in 1990, Frank Saul was in desperate shape because he had a lot of land investments out in northern Virginia with Bob Kettler. The bank was struggling because they were a savings alone. And so the SNL industry was dying. Basically.
• 20:12
  Speaker B: 150% loan to values.
• 20:14
  Speaker A: Exactly. I mean, they were not as aggressive as other SNL's. The Chevy Chase bank was a little bit more conservative. Frank looked at every deal and all that, but he got caught up with the land play and that was what almost took him down. We had to sell shopping centers, two centers at the end of 91, giant food to survive. I was on straight commission. It was a very tough time. But to me at that time, that was probably the biggest jolt to our industry. So to me, it would be a huge stimulus for the corporate advisory practice to maybe kick in at that point. So I'm going to leave it at that.
• 20:52
  Speaker B: Yeah, well, and I guess I would say that thinking back that far, I don't think our management consulting practice was as mature as it is today, of course. And what I experienced in that downturn and then again in 2008 and nine is lots of real estate companies and financial institutions really needed to revisit their strategies at that point in time. But the reality is that they were hanging on for survival.
• 21:20
  Speaker A: That's right.
• 21:21
  Speaker B: And so stopping to engage a consultant and pay good money for a strategy planning exercise at that point in time was just playing off the table.
• 21:30
  Speaker A: Well, that's not really what I'm asking, basically. Was the thought process developed as a result of the pain that everyone went through at that time?
• 21:41
  Speaker B: Well, sure. And Chris in his original edition of the strategy book really talked about the cycle. Exactly.
• 21:49
  Speaker A: That's what I'm getting at.
• 21:50
  Speaker B: The most important thing to be thinking about. And if it wasn't clear to people in 91, 92, it became clear in 2008 and 2009. Of course, my point was by that point it may be a little late. So certainly the thinking evolved. And our pitch has been, you need to think of your strategy that has contingency plans for different phases of the real estate cycle and have strategies that may be dormant, but ready to be deployed when the proverbial, you know, what hits the fan and not think about it at the time. Right. The notion of like changing the tires when you're driving down the highway, impossible. Thinking about your strategy, having guardrails so that you don't get too far over your skis are all of the things and lessons learned over the last 2030 years that I've applied to all of our strategy playing engagements. And so, yeah, thinking about the cycle, remembering past downturns, I think 2008, 2009, the great financial crisis really changed the behavior of a lot of companies. Prior to that, there was kind of a cowboy mentality in real estate. It was like, well, there's going to be a downturn, but we can't predict it. And so we're going to make an investment, and maybe the last one will hurt, but we'll be okay. We'll make lots of money before that. After that. And people went through multiple rounds of rifts and really stretched the survival of their companies. I think a lot of companies got a little bit more sophisticated and more careful about thinking about strategies. So here's the growth opportunity. It may be 1.5 x of our run rate. Do we really want to sign on for that 0.5, or do we let some of it go or outsource some of the execution capability? Because we know that the cycle is going to turn on us, and if we go from 50 people to 100 people, we're going to have to fire 50 people. And that was terrible in 2008. We never want to do that again. So a lot of companies really modulated their strategy and thought about how to manage growth better and how to put in place guardrails in a risk management from risk management standpoint to make sure that they're, you know, debt covenants and discount cash flow ratios and so on and so forth, didn't get out of whack. So when the cycle did turn, they were facing an existential threat.
• 24:13
  Speaker A: Well, what I want to do is explore those two crises, and then, of course, the most recent crisis with the pandemic. But that's a totally different type of crisis, and I want to get into that a little bit later. The difference, I see the first two being financial, this one being a user situation, a completely different crisis, but had similar implications to it to some extent. But what I want to get to is your career paralleling the growth, looking at both the management consulting side of the business and the real estate side. How did you learn the business? Basically have a parallel track on that, or did you go down one track and then the other? I mean, you were doing both. So how did you grow your knowledge base?
• 25:03
  Speaker B: Yeah, I would say early on, for me personally, it was really the real estate economics. It was about the dirt and the bricks and the sticks. That's what I learned first and early in my career, 70, 80% of what I did was real estate economics and market and financial feasibility, and I was traveling all over the country and doing industrial.
• 25:24
  Speaker A: So this is Ojt. Ojt. Or did you do a lot of reading and understanding?
• 25:28
  Speaker B: Oh, no, it was mostly on the job. Absolutely, yeah. And just learning and experiencing it and getting mark, you know, learning markets learning product types.
• 25:37
  Speaker A: Got it.
• 25:37
  Speaker B: Early on in my career, I worked on two industrial jobs.
• 25:42
  Speaker A: Okay.
• 25:43
  Speaker B: And so I became the company's industrial expert as a consequence to me.
• 25:48
  Speaker A: Sure.
• 25:49
  Speaker B: And so I went around the country teaching Trammell Crow company seminars on.
• 25:54
  Speaker A: Was it mostly distribution? Was it manufacturing? Was it everything?
• 25:58
  Speaker B: It was mostly logistics and manufacturing, some R and D, Flex and warehouse. But yeah, no, I had to learn the industrial lexicon to kind of understand. Well, so one of the things that, and this, again, I credit to Chris Leinberger, in part, he was thinking deeply about metropolitan areas and how they evolve over time from a real estate standpoint, and came up with a paradigm of urban cores and generations that really kind of describe very well what happens in one metropolitan area. You can see evolve in another area. And so if you understand how the generations of real estate cores evolve over time, you can go into a new marketplace and say, okay, well, it hasn't happened yet, but we've seen this pattern occur in the favored corridor in ten major metropolitan areas. This area is 510 years behind that in terms of its evolution. But here's how it's likely to go. I remember being hired by transwestern out in Houston, and they said Chris Leinberger, in the late seventies and early 1980s, came in and told us, here's where Houston's going. And he was dead on. So they hired me ten years later and said, okay, tell us where Houston's going for the next 20 years, which I did, and I think we were pretty much dead on. So using that paradigm, understanding metropolitan development trends, and applying that to how these areas evolve over time, really worked out as an organizing principle to think about real estate. So that was what I was really focusing my time on. But every time I did one of those engagements on an individual property or with a company, what I didn't realize is I was helping them with their strategy, and I just didn't know it. And maybe they didn't know it either. So by osmosis, I was really working on hundreds and hundreds of strategy engagements every time I was doing real estate.
• 27:49
  Speaker A: That's interesting.
• 27:50
  Speaker B: So again, that was sort of a virtuous and self reinforcing cycle. And then later on, the focus began to shift to more intentional strategy. And my experience in metropolitan development trends and the real estate economic world really paid dividends when I was helping companies think about their strategy. What are the product types? What are the investment strategies? What is the geographic footprint? And then how do you organize? How do you capitalize? How do you manage risk?
• 28:20
  Speaker A: So when did the light bulb come on. I mean, which project, which particular assignment?
• 28:25
  Speaker B: I'm still waiting for the light bulb to come on. No, but I mean, which assignment is getting dimmer?
• 28:31
  Speaker A: Let's just say you were doing an industrial assignment for trans Western, and they said, hey, Charlie, what about we need to step back as a company and think about what we're doing next? How are we going to buy? What are we going to buy and where and what should we think about? Was there a certain point in the time?
• 28:49
  Speaker B: Was certainly one that sticks out in my mind, helping a company. It was the first time I had been asked as a 30 something year old, tell me what you think about where this market is, because we're going to bet the company's future on this. And at one level, you're like, holy shit, you're asking me? But at another level, based on all the experience I had had up to that point and with the training I had had and the partnership with folks like Gotti and with Chris, I realized I belong in the room. I actually have value to add. And so that's kind of when the light bulb started to click, when I knew that I could actually contribute to a company's success and help them.
• 29:30
  Speaker A: Sure.
• 29:31
  Speaker B: So it was from that point forward, and I think it was probably in the mid nineties, I sort of viewed myself as a partner with our clients and not as a transaction and a service necessarily, where I would come in, do something, then go away, but rather be invested in their business, be invested in their team and their success. I go around the country and I don't build anything. I don't do anything. I sell ideas and concepts, but I have the same kind of pride in looking down the street and saying, oh, I consulted on that building. As I know the developer said, I built that building. I feel like I'm invested in that process.
• 30:17
  Speaker A: Well, that's, and I've asked this before, actually, about Gotti himself. Why didn't you just say, hey, I now know how to do this, why don't I do it myself?
• 30:27
  Speaker B: Well, sure. And lots of people do. And real estate consulting is a weird place and it's suited for everybody's personality. I am sure that I have undiagnosed adhd. And so the constantly changing nature of the business, the multiple things that we do, I work on projects that are four, six, maybe eight weeks long. Come week seven, I'm getting a little itchy to do the next thing.
• 30:56
  Speaker A: Ah, there you go.
• 30:56
  Speaker B: So I always describe RCLCO, and I think this probably applies to any management consulting business or real estate consulting business. It's like real estate university. You're going to get exposure to so many different products, markets, strategies, investment strategies. And even if you're working on multifamily in the same market, it's a different phase of the cycle. It's a different evolution of that metropolitan area from a development standpoint. So for me anyways, it was constantly changing, always new and different. I swore to myself that when I first joined the firm in 1987, that I would probably be here for two years and then I would go to business school. That's what you did back then, right? And probably still do. And I said, well, when the day comes when I don't feel like I'm being challenged or I'm not learning something new, I'll move on. That was 1987.
• 31:46
  Speaker A: You know, it's funny, as you were talking, there are two other professions very similar to that. One is real estate brokerage, the commercial. Whereas you take on an enlisting an assignment or a financing or whatever you're doing, and you have a certain period of time to get it done. And that's it. It's a deal. It's a short term cycle. And then the other one is lending mortgage in a mortgage banking and lending where you're investing. It's a deal. It's deal structure. So it's transactional. Our business is driven a lot by transactions. The big difference is development, and the development process can be ten years or longer. So that's, to me, the patient side of the business.
• 32:27
  Speaker B: Yeah. And we consciously chose not to be in the transaction business. And I think that has served us well in that we have a. I'm saying this because I think it's true, not because I'm wishing it to be true, that, you know, we have a sterling reputation for our independence. We are hired to tell people what they. To give them input and advice. If they knew what they wanted to do, they can hire someone. They don't need RCL, you're not going.
• 32:59
  Speaker A: To tell them what they want to hear.
• 33:00
  Speaker B: Correct. And we're willing to tell someone if their baby is ugly, that sometimes is more difficult than telling them that it's beautiful. But that is a role that we've carved out for ourselves. And so I think that has served us well over the years and is something that is core to the way that I conduct my business, both on the real estate economic side as well as the management consulting side. So at the end of the day, I always tell people, look, I don't have a vested interest in this deal or your company. At the end of the day, I don't really care, but I want you to do well because that's my job.
• 33:39
  Speaker A: So now let's get into the depths a little bit more of the strategy thing. The real estate industry has its own ebbs and flows that are influenced by a multitude of forces. Nevertheless, with appropriate strategy, companies can navigate those variabilities. Talk in general about the industry in context with the rationale behind strategic thinking. Please bring in the framework you conceived. You call the strategy parthenon of a firm base and nine pillars of strategy.
• 34:12
  Speaker B: If you could. Yeah, yeah, yeah. I can't remember where the Parthenon came from. I think that I kind of invented that as a way to.
• 34:21
  Speaker A: I thought it was really cool when.
• 34:23
  Speaker B: I first read it to describe the strategy planning process that works for real estate companies. And it is literally, if you see the book, it is the Parthenon. And what I like to say is that a well rounded strategy is built on a foundation of mission and vision and value.
• 34:39
  Speaker A: You have two foundations there.
• 34:40
  Speaker B: And then also the next step is determining what your goals and your objectives are. The notion of tell me the mountain I'm taking, and then I'll figure out the tools and the strategies I need to get there. But first of all, what are we in business for? What are we doing? What are we trying to achieve? For whom are we doing this? Because we're not just doing it to employ people. We have stakeholders, we have our own financial interest in the business, so on and so forth. So that is the first two steps that are the foundation. And where you start with a strategy, it should be informed over an umbrella or a roof. This is the extended meme of what's going on in the external market environment. So doing a very detailed swot analysis and having a point of view of what's happening in the overall economy and in the real estate economy that could have an impact on your strategy, helps inform what you do. And then there are nine pillars, and they're organized from left to right in a purposeful way, starting with industry role, which talks about what you do, both from an investment strategy, from a real estate sector, and from a business standpoint, it moves on into geographic deployment and how you grow it. Then talks about what your competitive advantages in the marketplace and how you differentiate yourself on through. And then on the right hand side of the Parthenon, you finally get to things like organization and capital and risk management. And the reason that we are organizing things from left to right in that manner is that you don't want to start with constraints when you are doing strategy planning. So you don't want to have a conversation like, well, we can't go to XYZ market because we don't have anybody who knows that market. No timeout, strategy faux pas. Right. First of all, figure out what is the opportunity to exist out of the marketplace. Can you develop a critical core competency in that business to get your share in the marketplace and then design the organization, acquire the human capital to go exploit the opportunity? Same thing. Oh, we don't have the money to do. Fill in the blank. Time out. First of all, figure out what the opportunity is, then determine how you can capitalize it. So again, organizing those pillars very purposely from left to right in that Parthenon meme has been very helpful. So we like to say that. I like to say strategy planning is about what a real estate company does and where it's a place based business, how it does it, absolutely critical. But you got to do that. After you figure out what and where you're going to do it, then you can figure out how.
• 37:11
  Speaker A: Well, now I'm going to back up and say why. So at a high level, discuss why companies should consider strategic planning and at what point in their growth is it necessary. It seems that a company of two or three people raising friends and family money to buy a couple properties a year is too small. How large should a company be to qualify for strategic planning, in your view?
• 37:35
  Speaker B: Well, let's acknowledge that every company, whether it's two people or 1000 people, has a strategy. The question is whether it is something that is born out of a conscious consensus from the people that are charged with executing the plan, or whether it's just an unconscious effort to keep doing what you've always been doing and being open and opportunistic. Now, being completely opportunistic can be a strategy, but that can be frustrating for a larger organization. So I would say that there's a need for a strategy regardless of where you are in your company's evolution or the size. The question is to what extent do you invest time and resources in external facilitation?
• 38:20
  Speaker A: Well, the sophistication of it changes, but.
• 38:24
  Speaker B: I had a, in the great financial crisis, when I was worried about whether the company was going to make it, I was doing some individual investment in home renovations just to keep the lights on and keep myself busy. I didnt write a formal strategy document, but I had a strategy. I had an idea. Here are the kinds of neighborhoods were going after. Heres the kind of properties that were going after. Heres the kind of investment that were going to make. Heres how were going to capitalize it. Thats all strategy. It was just done at an individual home level, not at a enterprise level for a corporation. So I would argue that a, every company has a strategy, but the real value of strategic planning, in my mind, is getting everyone moving in a common direction and having a common lunch. I can't tell you how many times I go into an organization and people will, in the discovery and confidential conversations. Right. When you're doing discovery, to find out what the important issues will say, like, I'm not sure we have a strategy, and that's probably not true. You have a strategy. It just hasn't been well articulated. Or there may be people that have different ideas about what the strategy is that you were so getting the team in a room and saying, here's what we're going to do purposefully and here's what we're not going to do, has a lot of value in helping an organization move forward.
• 39:46
  Speaker A: I assume that's probably the baseline of what you do when you first meet with a client. Client figure out what they're doing now and figure out what works and what doesn't work and then build from there, maybe.
• 39:57
  Speaker B: Exactly. Yeah, but the process of strategic planning, every company is different, every situation is different. But the process that I've designed with Chris and Gotti's help over the years is the same no matter what. So you start with a discovery. And some of the key elements that you talk about in discovery are first and foremost, what are we doing and for whom? What are the goals and the objectives? What is the mountain we're trying to take?
• 40:22
  Speaker A: So even if you're starting a company, you should have, I mean, day one, okay, you meet some guy at a bar or for lunch, let's just start a company. So what do we do and what are our strengths? So you have to look at each person's strength. Right. What am I good at? In my view? And after lending in my career, there was always a mister outside and a mister inside or a misses outside or misses inside that you know, it. Somebody's a hunter and somebody's a skinner. I mean, you start with that, that framework and build from there. Am I, am I right with that or not?
• 41:03
  Speaker B: Yeah, but I'm sure, again, the two people meeting in a bar may be a different situation if you're, you know, if you're going into a company. I mean, one of the other strategy faux pas that I often kind of will call a timeout on is, don't assume that you have to fight this battle with the army that you have. Right. Channeling Rumsfeld, which I don't like. The idea is it's planning with constraints. Like, here's the team we got now, what do we do with the team? No, that's backwards. What's the opportunity?
• 41:35
  Speaker A: There you go.
• 41:35
  Speaker B: How well suited is our team to that opportunity? And do we need to change our team? Do we need to supplement our team? Do we need to throw our team out and start over? Which may be the case. So, again, I start with questions about, okay, what are we trying to accomplish? What are we good at today that we can leverage? Don't ignore that, of course. And then another absolutely critical question Chris Weinberger taught me this early on, is, where do we make money? You'd be shocked how many times I asked that question. And people may have a story, but they do not have facts.
• 42:09
  Speaker A: Interesting.
• 42:09
  Speaker B: A great example, and it's in the book, in the Crosland case study, the classic example that I come back to, Crosbie, Charlotte based, multi generational, family run business that had its tentacles in lots of different real estate sectors. One of them was home building, land development, and home building. They did their home building in a big schmear, right? So they did land development, and then they did vertical home building. So they looked really good on paper in their home building, vertical. When we asked them, it's like, okay, well, where do you make money? Do you make money in developing lots, or do you make money in building homes? We're like, we don't know. We just have one p and l for that business. So when we forced them to go through the exercise, what they realized is they were making 150% of their profit every time they developed a lot, and they were giving it all away, or giving a lot of it away every time they built a home. They were a lousy home builder. So what was the strategy? The strategy was to sell their home building business to a public home builder who was happy to then have a long term contract with their land development team to furnish some finished lots.
• 43:14
  Speaker A: I'm going to throw a local person into the mix, based on that case study, and ask you, I know you know who he is and have done business with him, probably. And that's David Flanagan at Elm street.
• 43:26
  Speaker B: Yes.
• 43:27
  Speaker A: And they are both land developers and home builders, and they figured it out. They were able to be successful in both.
• 43:34
  Speaker B: Well, I'm not saying that you can't do both. The point is, in the strategy planning exercise, it's really important to know, and I mean know in air quotes, know where you're making money.
• 43:46
  Speaker A: Right.
• 43:46
  Speaker B: What is contributing to your profitability? Because if you don't know that information, you can't make decisions about what to do or not to do. So that's one of the most important things that you do early on in the strategy planning process is make sure you drive your client company to understand what is contributing to their success and what is not. So going through and doing a track record, where are we making money and where are we losing money? And is there a pattern there? And do we want to make different decisions based on that? We own rental apartments in Carmel, Indiana. Why does that make sense? Should we be doing land development or vertical humbling and really doing some forensic financial analysis to understand where you're making money is one of the very early steps in strategic planning.
• 44:41
  Speaker A: Well, your practice started in the home building side, and it to me is the most volatile, maybe other than hotels, the most volatile of all is land development. I mean, it's either gangbusters or dead. And so you have to plan for those highs and lows. Right. Throughout that.
• 45:01
  Speaker B: No, absolutely. Yeah. Land is the thing that can take companies down. Exactly. Historically, and I've had lots of experience with clients that are in the land development business, and they will have, as a risk management strategy, they will have a zero debt strategy on land because of what you just described, when the cycle turns, the value of your land plummets. And if you've got a note on that and it's an interest clock ticking, that is a thing that can kill you. So I'm not suggesting that everybody has to have zero debt on land, but that is a risk mitigation tool that a lot of land developers use that are in other businesses as well.
• 45:42
  Speaker A: So let's talk about walking through the path here. And what I'm saying is, could you translate your strategic framework to a company growth timeline in a generic case study, for instance? So starting with two people who come together to acquire an asset, then they hire an asset manager and continue to acquire assets and self manage them. At some point, they want to grow the portfolio and diversify either geographically or by product type. What milestones would you flag to start a new plan or restructure an older one?
• 46:13
  Speaker B: Yeah, well, you started that premise with something odd, which it's unusual for a company to have an asset manager earlier in the incarnation. That's usually something that a company, over time. Yeah, over time and more mature, realizes that that's a necessary component of their business. But usually the milestones are you start with a fairly entrepreneurial kind of ethos and people wearing multiple hats and lots of fairly risky things with shoestring capital and friends and family money to capitalize their business. And as that grows over time, usually the company outgrows its Rolodex of friends and family and country club members and starts thinking about evolving their capital base to either small family offices or institutional capital providers, which begins to trigger a whole cascade of needs and requirements and sophistication. If you're going to start accessing institutional capital, first of all, they're not even going to give, they're not even going to look at you today if you a don't have a strategy and don't have a track record, and don't have qualified people who are going to be around for the next investment cycle, who put the track record in place. So those are some of the foundational things in terms of evolution. So yeah, a lot of companies sort of smear together property and asset management early on in their incarnation, and it works just fine. We own, we operate, we manage, and we charge ourselves a 5% property management fee. Well, the market's 275, three at the most, maybe. So you're actually kidding yourself. You're doing asset management and property management, you're just blurring the lines as your portfolio grows, as your span of control grows, as you start accessing more sophisticated sources of capital. There is very different thing. Property management and asset management are very different things.
• 48:14
  Speaker A: Yes, they are.
• 48:15
  Speaker B: And one of the interesting things that I think a lot of companies, particularly small and mid sized companies, go through these days is the extent to which they should be self performing some of these activities. Almost every company should probably have a robust asset management function, either for their own stakeholders or for external capital sources. Property management, I think, is becoming much more of a commodity. There's lots of owners, operators who feel that that's an important part of their secret sauce. And I'm not trying to deny that. But a lot of companies are also recognizing that the size and scale that you need to be efficient and effective in that business is changing from a technology standpoint, from a critical mass standpoint. And some companies have made the decision to outsource property management while retaining robust asset management functions for their own portfolio. So those are a couple of the things where companies start to evolve from a capital standpoint and from an execution and property and asset management standpoint.
• 49:19
  Speaker A: But then looking strategically, what are the steps to growth? I mean, how do they see growing? And so that can go a myriad of ways, I assume. And it really, I assume the markets have a big part to do with it, but also the strengths of the management team as far as what they're, you know, what they bring to the table.
• 49:40
  Speaker B: Well, there's probably two or three flavors of real estate companies out there. On one end of the spectrum are the companies that do one thing or one sector. I'm a multifamily company. I'm a hotel company, I'm a retail company. And I do that. I may do that in multiple markets. On the other end of the spectrum are companies that maybe do lots of different things, but they focus on one major metropolitan area or one region. And so they understand that region, but they may do three or four or five different things.
• 50:13
  Speaker A: I'll cite two examples. On the extreme, the rapid port companies in retail, JBG companies before they were public. On the second, sure. Would you say that's probably good analogies?
• 50:26
  Speaker B: I think about all the apartment, both public and private companies. They do multifamily. Wall street has spoken.
• 50:33
  Speaker A: Avalon Bay.
• 50:34
  Speaker B: We want specialization. I've been involved with a couple of public companies that were multi sector that realized that in order to gain investor mind share, you really needed to focus. So I think of iret out of, they're in Minneapolis now, but they were out of North Dakota originally. They had healthcare and senior living and multifamily.
• 50:53
  Speaker A: Right.
• 50:54
  Speaker B: And they never could get traction on Wall street. Well, when they decided to focus exclusively on multifamily, it became a much more compelling story.
• 51:03
  Speaker A: Well, there's a local example. Just recently, wash REIT became elm compunities. Right. They sold their entire retail and office portfolio.
• 51:11
  Speaker B: Exactly right. And, you know, lots of companies are making that decision to narrow their focus and to do fewer things in more markets because that is responding to where the market is headed. So that's not to say that there aren't successful companies that are doing, I mean, look at the Peterson companies here in Washington. I mean, they do lots of different things, but they are focused exclusively on the Washington metro area. Really. They do some other things, but it's mostly, and not only that, it's mostly northern Virginia, although they do have investments.
• 51:44
  Speaker A: In Maryland, but Silver Spring and National harbor, certainly.
• 51:49
  Speaker B: Yeah, little things like that. But there is a company that is very diversified, and that is, and I work with Milton now with John and his management team. That is their strategy. We are going to be a diversified real estate development, investment and investment platform within this marketplace, consciously. And the thinking behind it is office is going to be down and apartments are going to be up and retail is going to be good and hotels not so good, and large scale communities versus, and that allows them to morph with the market and to have more lines in the water, if you will.
• 52:30
  Speaker A: Interesting. So the process takes upwards, what, six months to a year to build a strategy, a strategic plan from your framework.
• 52:39
  Speaker B: It really depends, I think that it really depends to a large extent on the constituencies that you need to address, either internally or externally. Large public companies might have many constituents that they want to invest in the process. We're working with a company in Minneapolis right now that there's, there's four, you know, subsets of internal employees from different groups that are contributing to the process. And then that's all bubbling up to a strategy planning team that are, you know, charged with crafting.
• 53:14
  Speaker A: Do you go to clients, customers and vendors and everything else outside the firm? Sure.
• 53:18
  Speaker B: So we, in the, in the initial discovery, we would always recommend absolutely talking to people inside the organization. And again, it depends upon, on the size of the company and the sophistication. I always start with the mantra that you should be talking with people that can be strategic thinkers as your first screening criteria, but there's politics involved. If I'm going to talk to Jane, I better talk to John, or else John's going to be upset. So who you talk to is sort of a process within a company. But I will often go out to investors and shareholders and vendors and partners and learn what are the strengths and weaknesses, what are some of the strategic nuggets that actually will fall out of trees from unexpected places. So there's lots of value in doing those broad discovery based interviews both internally and externally in the company.
• 54:14
  Speaker A: So once a plan is created, implementing it requires direction. Yet in my opinion, adaptability to unforeseen challenges, examples being 911, the GFC, the pandemic, how do you build inflexibility yet discipline into the process?
• 54:36
  Speaker B: That's what I talked about at the beginning here, was making sure that you have strategies in place that you're ready to deploy at different phases of the economic cycle.
• 54:46
  Speaker A: Got it?
• 54:46
  Speaker B: Right. So what you were doing in the expansion phase of the cycle may be very different than what you were doing in the downturn. And as you approach the cyclical peak in a real estate cycle, that is a very important planning and execution period of time for companies. Right. And thinking about what they should be doing when they believe, because you never really know when you are approaching sort of a cyclical peak right. If you missed a cyclical peak and you're making some big bets at the wrong time, that can sink a company. If you're in the bottom of a downturn and you miss the upturn by a couple of quarters, that's not going to, that's not going to kill a company.
• 55:25
  Speaker A: No.
• 55:26
  Speaker B: But if you miss the downturn, the beginning of a downturn, that can be bad. So again, thinking ahead to what do we do in this phase of the cycle? What do we do when we think we're approaching a cyclical peak? What do we do as we're on the down slope? What do we do at the bottom and how do we think about when we should be getting to make new investments and plan for growth? So right now, the conversations I'm having with real estate companies are okay, regardless of whether the US economy is in a recession, and technically it is not. Real estate has been in a recession for the last twelve to 18 months for sure. So the question right now is when are we going to start to see an uptick in the real estate economy? And my argument is that it may be too soon to see the green shoots just yet in a recovery taking place. But I think the ground is starting to thaw and we're already in our business starting to see a lot more contacts about new opportunities coming up and companies thinking about, okay, well, this isn't going to last forever. Fortunes are made in the inflection point between downturn and uptrend.
• 56:33
  Speaker A: Or ahead of them.
• 56:34
  Speaker B: Yeah, exactly. And so early movers that can lay in opportunities now can reap the rewards for years to come. So I think back to the work that we were doing with the Bazuta group, who I think is a great example of a company that was an early adopter. In 2010, Gotti and I were in a strategy session with Tom and the team and said, you should back the truck up and buy all the land you possibly can now. And they did. And for the next five years, they had a great foundation that stood them in good stead for many, many years in the extension. In 11, 12, 13, when I interviewed.
• 57:16
  Speaker A: Tom, he said that 2007 and zero eight almost took the company down. Well, sure, because of home building. Yeah, that was their downfall. They got overexposed in land.
• 57:29
  Speaker B: Well, that cycle was, I mean, like the pandemic was, was unique and different and different from 90, 91 in that it was a speculative credit bubble, not a demand bubble. And so we were advising. There were a lot of condo converters. And I remember big time lots and lots of studies. And I remember specifically writing into our reports back in 2005 and six and into seven, saying, you should make sure and get comfortable that the buyers in the marketplace are actual end users and not speculators, because what happens when prices go sideways? Forget about going down. The speculators are gone because they're in it to buy on a Thursday and sell on a Monday at a higher price. When we heard that there were cocktail waitresses in Vegas that are speculating on condo contracts, it's like, well, that's the beginning of the sign of the apocalypse. That should be one of the signs that we're getting overheated. And so that did happen. When the markets cooled in zero seven, the speculators evaporated. And the challenging part back then is we thought that there were only 30% speculators. It turned out in a lot of these developments, there were 70 or 80%. So that market turns on a proverbial dimension.
• 58:55
  Speaker A: Can you anticipate that, though, is the question. How do you know whether you're over your skis too far or not? I guess, is the question. And that's maybe a gut feeling.
• 59:07
  Speaker B: I wish I could say that we saw it coming smarter than everybody and that we were ringing the alarm bells. The reality is that in our business and in a lot of real estate businesses, they had some of the best years they ever had in 0506 and zero seven. And it turns out that it was a bubble for sure. But you didn't know that until 0809. And look, if a broken clock is right twice a day, and there were very few people that were calling for the kind of calamity that we saw in the great financial crisis. Very few. You know, do I feel bad for having missed that? Sure. I was not alone. We were not alone. We were telling our clients at the time, and I do remember this distinctly, that we were telling people like, look, this is too good to be true. This can't last forever. So be careful again, make sure you have actual end users. Be careful about your capital stack. Don't get yourself overextended. Not don't do this deal, because we don't know for sure that September of 2008 is coming. Nobody did.
• 1:00:16
  Speaker A: Also coming closer to today, March of 2020 came too. A wholly different type of problem. No one could have anticipated that.
• 1:00:27
  Speaker B: So I don't think you can design a strategy around the great financial crisis. You can't design a strategy around pandemic pandemic, because you would do nothing.
• 1:00:36
  Speaker A: Right.
• 1:00:37
  Speaker B: So that is not realistic.
• 1:00:38
  Speaker A: The question is being ready for it, though.
• 1:00:40
  Speaker B: Well, yeah. So the question is, how do you design a strategy that minimizes, or at least contains your downside risk?
• 1:00:51
  Speaker A: Exactly.
• 1:00:52
  Speaker B: To the sleeping point for you as an owner or a manager.
• 1:00:57
  Speaker A: Right.
• 1:00:57
  Speaker B: Because we are in the business of making money.
• 1:00:59
  Speaker A: How do you build a cushion without being too conservative?
• 1:01:02
  Speaker B: Right. Yeah. Having $150 million in cash on your balance sheet probably is not a great idea.
• 1:01:08
  Speaker A: Warren buffet is probably too conservative, but he's done pretty well over the years. Right?
• 1:01:13
  Speaker B: Exactly. Exactly.
• 1:01:15
  Speaker A: You know, so that's the question. And you wrote your third edition probably as a result of what happened during the pandemic, I'm guessing. So go ahead and talk about that a little bit.
• 1:01:27
  Speaker B: I wrote the third edition. It's been hanging over my head for the last five years, quite honestly.
• 1:01:33
  Speaker A: Oh, really?
• 1:01:34
  Speaker B: Well, I mean, look, what do you do when the sun is shining? You make hay. Of course, our business has been strong, and I would never advise someone to write a book in their spare time, which I did not have. So that's why it took me five years to actually get it. And then when I finally, it really took me about a year to get it done, when I finally said, okay, enough is enough, and I got to get this done.
• 1:01:57
  Speaker A: Well, how much of this new edition is new? I guess.
• 1:02:01
  Speaker B: Yeah. Well, I will say entirely.
• 1:02:05
  Speaker A: Okay.
• 1:02:05
  Speaker B: I mean, so the process that we have devised and have been executed over the years is still valid and I think still applicable to the business. So the fundamental exercise that you go through and the tenants of a well rounded strategy for a real estate company, I think are largely intact and still relevant. What has changed is obviously it's a completely different market, a different timeframe. There's different capital, market environment. And a couple of things that we did in the latest edition is the capital strategy pillar is much more robust and talks a lot more about institutional capital. That was certainly in the business in 2008 and 2009. But every real estate company in the country now is thinking about, should we be a fund? Well, maybe yes, maybe no. But that wasn't on people's radar in 2005, 2006, necessarily. So capital markets and the evolution of capital from friends and family and investing your own capital to going outside of the shop and other people's money and institutional capital and sovereign wealth funds, and now we're looking at crowdsourcing of capital for deals. So that continues to evolve. And we brought that current. The other thing that we did is that we noticed that a lot of the companies, we were very good in saying strategies about what you do and where, which I said earlier, how you do it is important, but that's implementation. So figure out what your strategy is first, then figure out how to execute on it, or else you're going to get the cart before the horse and planning with constraints like we talked about. But what I realized is that many of our clients got to the end of the strategy planning process and were like, ah, we're done, and then put the strategy on the shelf and then forgot to follow through and put the strategy into an implementation plan. So you'll notice in the Parthenon in the third edition, there is a final pillar. That is implementation, because that is to me, an absolutely essential part of a well rounded strategy is making sure that you have an implementation. So you do have to go through the process of saying, okay, here's what we said we're going to do now, here's how we're going to do it, and here are the key initiatives that we're going to follow through. Here's the timeframe, here's who's in charge of it, here's how we're going to incentivize people to get things done. Here are the resources that we need that now has been added as an essential part of the round trip and as a strategy consultant and facilitator. If I don't help you get your implementation plan done, the strategy is not complete, of course.
• 1:04:46
  Speaker A: Well, how often should you revisit it? I guess is the question.
• 1:04:49
  Speaker B: Yeah, I think most companies are kind of on a cycle of every three to five years. The reality is they probably do it every five to ten years. And I would say that that's probably appropriate. But for when the cycle turns right, if there is a meaningful inflection point in the economic or real estate market cycles, that is the time to maybe revisit your strategy in whole or in part. Now, I would say that a good exercise for real estate companies, and probably any company, is to do an annual review of your strategy. Here's what we said we're going to do for the next ten years, and we're in year three of ten. How are we progressing? What has changed in the external market environment? What's changed in the company? What should we do to modify our strategy going forward to make sure that it's still relevant then, not just beyond cruise control. Right. So if you completely change your strategy every year or two years, you probably didn't land on the right strategy to begin with, but to let it go for a long period of time without revisiting, checking, monitoring, fine tuning, I think.
• 1:05:58
  Speaker A: Is also a mistake, you highlighted it. But of all the pillars in your framework, in my mind the most important is, was in the first edition, cycle management. You changed its name to risk management. In this edition, discuss the important aspects of this and why it's so important. Perhaps with a case study, and you cited a few things before, but is there a case study of why you changed it from cycle to risk?
• 1:06:25
  Speaker B: Well, this goes back to Chris Lineberger and his original organizing principle was the extreme, extreme cyclicality in the business, was the impetus for the need for strategy playing in real estate and why it's so urgent. And I didn't mean to diminish that in any way. And I think I say in the book that cycle strategy and market risk is still one of the most important things for a real estate company to be thinking about and planning around. But as I interfaced with more companies over the years, I realized that there other real estate risks and factors that are important to take into account capital, market risk and balance sheet metrics, maturity of loans. There's silly stuff like slips and falls, corporate liability. So there's a whole host of, and lots of large sophisticated real estate companies have risk managers. I mean, it's a job description.
• 1:07:24
  Speaker A: Well, if one of the principles of the firms dies, is that a risk?
• 1:07:27
  Speaker B: Yeah, well, sure. Now that's just first to talk about succession planning, which we talk about in the organization pillar. But sure, that is another risk factor in ensuring that your company has a robust succession plan either to deal with unanticipated or planned turnover in the organization is absolutely critical for the longevity and creating a robust organization that will stand the test of time.
• 1:07:56
  Speaker A: So I recently interviewed Cameron Pratt of Folger Pratt. They may be a current or former client of yours perhaps when he joined the company, they were concentrated in Montgomery County, Maryland and looked at one deal at a time for financing and fee generation. They were also vertically invested in construction, property management, development and investments. Last year he decided to sell their construction group to Clark Real Clark real Clark construction and transition to third party management with Bozzuto. I didn't ask him if RC Oka was advisor, but even if you weren't, please opine on this decision and perhaps provide a completely opposite case where services were added to have better control over the overall process and its rationale possibly.
• 1:08:46
  Speaker B: Well, I think you'll highlight an absolutely essential component of strategic planning, which is deciding what you're going to do and what you're not going to do. Part of that exercise that I talked about figuring out where you're making money is the first step in helping you make some of those critical decisions. There are lots of companies that are fully integrated, right? They do investment, construction, property management. Basudo is one great example here in the Washington metropolitan area. And they have consciously made a decision to be in all three of those businesses because they believe that the synergies and the benefits they get out of having control over the whole round trip of a real estate investment is part of their success. They believe it. I think their success over the years has demonstrated that they're probably right for them, for other companies. And Kepler is a good example also here in Washington, DC, where they decided they were at 22 25,000 rental apartment units under management, that today is a small, maybe midsize, maybe even pushing it. That's kind of a small portfolio to manage efficiently. So Bob made the decision seven, eight years ago to outsource property management because they were losing money in the property management. And they realized, I think more importantly, at least for them, that they weren't adding value in property operations. They were adding value through their investment, development and asset management. But for them at least, property management was a commodity that they could outsource to somebody else. I'm working with a company right now, happens to be in Memphis. They believe strongly that their property management is part of their success. And I challenged them to think about whether that was in fact the case and whether the investors that they had valued their fully integrated model or not, because the markets have been shifting on that. So I got them to think very deeply about that. At the end of the day, I think they recommitted to being in the property management business. But they decided, I only want to perform property management separate from asset management for assets in which we have an economic interest. It's the third party business that's killing us. And so they've made a decision to, over time, to exit the third party business, because that was the source of consternation for them. But they really felt like controlling the resident experience in their properties was essential to their success and why they were able to attract outside investors.
• 1:11:35
  Speaker A: So it's a philosophical thing, is basically what I'm hearing you say to some extent, and the talent that you're able to retain internally to be able to manage those processes. So you mentioned Bazuto, which I know pretty well sure their growth as a company came from property management. I mean, Tom told me that early on, if it weren't for the crisis of the early nineties, they wouldn't have gone in the property management business. Because they needed fee revenue, they didn't have deal, they couldn't do deals at that time, so they had to build their company through property management feed the fee business is what grew their business at that time. And then over time, they decided to do other things and become more vertically integrated, but they would never have grown. And Julie Smith, I have to give the most credit. I mean, she was amazing at what she did. Yeah, well, she's not doing that anymore, but yeah, yeah. So I've interviewed Tom, Toby and Julie for that reason, because I know each one of them did something different to grow that firm, which was fascinating to me.
• 1:12:38
  Speaker B: So Bazutu and the companies like them are great examples of what we talk about early in the book, which is strategic balance for a real estate company. And the notion of strategic balances is creating a real estate platform where you have recurring sticky income that can support your organization in good times and in bad.
• 1:13:00
  Speaker A: Right.
• 1:13:00
  Speaker B: And that enables you to take big capital risks of development or value add or acquisitions, whatever it may be, at the appropriate points in the cycle. So the difference is there's lots of developers out there, but for every three or four years out of every ten, developers are sitting on their hands. That's right, as you well know. And some of them find it very difficult to keep their teams together and even survive in downturns because their recurring revenues, which are acquisition fees and development fees and construction management fees, go to zero when they're not doing anything. So we talk about creating that kind of strategic balance in a real estate platform that is the Ravana. So don't think of yourself as a developer. Think of yourself as a real estate company that has recurring revenues either from income producing assets or from fee management that is not dependent upon transactions or development, and then doing higher risk activities that can juice your returns and really maybe the reason you're in business. But you're only going to do at the appropriate points in the cycle.
• 1:14:11
  Speaker A: Companies are now faced with complicated real estate markets with extreme winners. Data centers, industrial select retail properties and extreme losers class BC office older malls commodity older apartments and unfriendly capital markets. As in all challenging markets, positioning is critical. How would you recommend your clients to position themselves today? Cite three examples. Depending on size, a small, medium and large company with rationale for each. Maybe you can cite three examples.
• 1:14:45
  Speaker B: Wow, this sounds like a three hour exam. That's tough. So, well, let me try and you redirect me if I start to wander. I guess what I would say is that at this point in the cycle and other points like this, you talk about winners and losers. I think there's opportunities that exist even in some challenging sectors. So let's talk about office for a moment, which everyone would acknowledge is under extreme stress and duress. And that probably will only increase over time. And yet there will be an opportunity for new office development and value add office.
• 1:15:32
  Speaker A: Well, it's happening today.
• 1:15:33
  Speaker B: It's happening today.
• 1:15:34
  Speaker A: Look at Restin.
• 1:15:35
  Speaker B: There are cranes in the sky and flight to quality, and 100% locations and assets will probably perform well, or at least better. But if you own a bunch of class B office, you may own some dirt and you just don't know it yet. So retail is another great example. Retail has been reinventing itself since the beginning of time. Of course, there's nothing new. I mean, sure. Has the Internet accelerated that pace of reinvention? Absolutely. But there will be winners and losers. The class A malls, the 100% suburban malls will probably do okay. And smart owners and operators are investing in those malls and densifying them and adding medical, office, and housing, and making them centers, not just for retail expenditures, but for a community. But again, if you own a b mall in a less than 100% location, we've been analyzing a number of those, and some of them, we've been thinking about them as dirt, not as retail developers.
• 1:16:42
  Speaker A: Well, there's at least two, maybe three in this market that I can think of right now. Landmark, the one in Gaithersburg, the big one there, Lake Forest.
• 1:16:51
  Speaker B: And then working with wrs on the redo. Yeah.
• 1:16:53
  Speaker A: And I think Dulles town center eventually, too. I mean, and of course, both white Flint and Landover were torn down, basically, or gone.
• 1:17:03
  Speaker B: So I think, as you look out in the landscape as a real estate company, a couple of things to keep in mind. Number one, demographics is destiny. As we always say in this business, we are blessed in this country of having a fundamental underpinning of population and household growth, which is the demand side of the equation. So if you believe that there is going to continue to be household growth and we fix, or at least modify our immigration policy in the country, there will be demand for housing. And so that may be a good strategy to focus on housing. Now, where in housing do you want to focus? Do you want to be in the home building business, which I agree is much more cyclical, or you want to be in the multifamily business, which may be more stable, and maybe you want to be in both. But those are some of the decisions that you need to make based on your company skill set and your capital stack and so on and so forth. So there's going to be opportunities in housing into the future. There will be cycles, of course, but if I was going to bet on housing, I would feel good about that. As a real estate company strategy, if you've been in the industrial business multifamily, or self storage or data centers in the last five to ten years, you guessed right, and you've probably done pretty well. Are those going to be the flavors going forward? It's hard to see e commerce slowing down near shoring and onshoring of manufacturing and distribution and logistics. Sure, there's been some overbuilding, and when Amazon takes a pause, developers take note, but their strategy is evolving. And so I see industrial as having legs, housing having legs. I think the resort and the hotel business will continue to be cyclical, but people are going to take vacations, people are going to travel. You just have to think about the fundamental underpinnings of demand for various real estate products, and that will help guide your strategy as a company. And then there's always been going to be niche opportunities, even in a down sector, in a particular market or submarket. So I don't think there's a blanket right or wrong strategy for a company to pursue going forward. Now, if you owned a bunch of suburban B 1960s vintage office buildings, might want to think about diversifying and doing some other things.
• 1:19:34
  Speaker A: Okay, so scale really doesn't matter. It's just how you pivot and what you pivot with basically, to some extent.
• 1:19:44
  Speaker B: Well, I'm not sure I would go that far. So scale is another dimension that I think is an important one for real estate companies to wrestle with, and particularly as companies evolve from being small to midsize to being mid sized to large. And it really has to do with capital formation and deployment more than anything else. So if you have an ambition to tap institutional capital either in one off investments or more often in a fund or some sort of programmatic venture, then those institutional capital providers want to write checks that have, you know, $200 million in them. And so there is an efficiency standpoint in terms of accessing capital that does speak to a certain size and scale. So if you want to tap institutional capital, you probably need to have sufficient throughput to be of interest to that capital. So it's a virtual, they don't want.
• 1:20:49
  Speaker A: To just do one deal with you.
• 1:20:50
  Speaker B: They don't want, and you as a developer probably don't want to do one off capital capitalizations because of the brain damage that's involved in doing that I'd rather raise $200 million and have a mandate within a box to go and pursue this strategy.
• 1:21:02
  Speaker A: Exactly.
• 1:21:03
  Speaker B: And then I don't have to worry my guys and gals in the field about generating capital. I got the money, you go find the deals. So that is a big inflection point that a lot of small and mid sized companies make when they start thinking about how to tap more programmatic and institutional capital. Is having sufficient size and scale in the sector or in a market to be able to deploy that capital in an efficient manner?
• 1:21:27
  Speaker A: Well, you mentioned one company, and I'm going to bring in another that have been able to, been very fortunate to hit the good cycles at the right time and to be able to reinvest their capital in a very diversified way. The one company is the Petersen organization, who never had a fund, I don't believe, and don't think ever had a one off institutional capital partner. They were very productive in the for sale market and were able to build enough of a capital base internally to not have to go to the institutional capital market that often. And then the other company is the Lerner organization, Lerner Enterprises, who completely changed their business plan with the regional mall business. I mean, had to completely shut it down. And I interviewed Art Fusillo and he told that story. And of course, they just had the largest sale in northern Virginia history of land, which was a mall to a data center group, of course, that bought it. So they were able to pivot, but they had huge assets to start with and able to afford to go through those crises accordingly.
• 1:22:37
  Speaker B: So I think the Peterson is a great example, because I remember having this conversation with John Peterson and his team when we were doing strategy planning just a few years back. And their strategy is a risk management strategy. They have consciously decided to do one off capitalizations of their real estate investments and assets because they don't want to cross collateralize them so that one bad deal could take down a whole bunch of others. So that is the jeopardy in the fund model, where everything is commingled. If something goes bad, that affects the whole fund. So I'm not saying that it's a right or a wrong strategy, but that is the strategy that works for them. And clearly they have been successful in attracting a stable of investors over the years, so it's not a rate limiting factor. Another example on the other side, you know, Lily Dunno, president at Bell Partners, well, they started off with friends and family, country club money, doing one off capitalizations. And then when John Bell took over for his father, and he had a career in Wall street and in the capital markets, brought the fund concept to Bell, and they migrated from that one off investment to a fund loan. I think they're working on fund nine now. And so it's proven very, very successful. But part of what they did there was they narrowed the focus of what they did similar to how the Reits have done it. They are a multifamily value add investment platform, and they would probably describe themselves not as a real estate company, they would describe themselves as a real estate private equity firm.
• 1:24:24
  Speaker A: There it is.
• 1:24:25
  Speaker B: Which is what they are really at the end of the day. Now, they happen to believe in the fully integrated model of acquisition, value add, property management, and property management because they believe that their investors are interested in that model. But we continue to debate should we self perform property management or should we not? In the most recent strategy update that we did with them just a year or so ago. So they're still thinking about should we be in that business or should we outsource this and came back and affirmed that that is part of their secret sauce. The resident experience is critical to what they're selling to their investors and so reaffirm that that's an important part of what they do. But the point there was the migration from one off capitalizations at a diverse platform to a targeted single sector and large fund model. Neither Peterson or Bell got it right or wrong. It's just a different strategy, and it seems to be working for both of, of those companies. So you got to figure out what's the right strategy for you that balances risk, reward, efficiency. And you talked about critical mass. Right. One of the things that we do talk about is down to the market or submarket level, is convincing our strategy clients that they have generated sufficient concentration of assets or effort to operate efficiently and effectively. Right?
• 1:25:51
  Speaker A: Economies of scale.
• 1:25:53
  Speaker B: Correct. So within a given metropolitan area, to have a minimum of two to 3000 apartment units or six or seven communities that a regional manager can visit within one day is one of the, you know, in the multifamily space, is one of those organizing principles that you say, okay, I want to focus on markets where I can convince myself that I can grow to and maintain that minimum critical mass of operation in order to operate efficiently and effectively, just from a profitability standpoint. And that can be something that guides you into a decision about what are the segments that you follow, what are the markets that you pursue? And even within a metromylevan area, what are the sub markets that you pursue. So strategy can get very granular when you start talking about size and scale.
• 1:26:38
  Speaker A: I think even before the multifamily sector, the retail sector, did that.
• 1:26:42
  Speaker B: Sure.
• 1:26:42
  Speaker A: Even more so.
• 1:26:43
  Speaker B: I could say the same thing for officer industrial or, you know, whatever it may be.
• 1:26:49
  Speaker A: Suppose you were speaking to a group of real estate company leaders today. In light of the explosion of technological changes happening, what would you recommend they focus on to keep current and adaptable to these changes?
• 1:27:03
  Speaker B: Yeah. Boy, that's a real challenging issue for real estate companies. So, first of all, the intrusion, the infusion of technology into real estate spectacular, has been growing exponentially, and that will only increase in pace. So I would argue that companies that do not embrace technology are at some point going to be left behind dinosaurs. The challenge for real estate companies, particularly small and mid sized companies, is where to play on the spectrum of, you know, bleeding edge to leading edge to close follower. And it's kind of, that's pejorative, right? Most people say, well, I don't want to live on the bleeding edge, right? I'm not going to, I'm not going to be EQR and invent LRo because I don't have the resources or the capital to do that. I don't want to be so far behind that. I am at a competitive disadvantage. So I need to play somewhere on the spectrum to be current, but not make investments that are outsized for the size and scale of our organization. So artificial intelligence, big data, this is all going to be part and parcel of what a real estate company needs to wrestle with in their strategies. And I would say that technology in and of itself is not a strategy, it's a tool that will help you achieve your strategic objectives. I don't think there are a lot of real estate companies that should have a technology strategy. They should have a technology point of view and an implementation plan to make sure that they're competitive and current. But developing software that's proprietary to your company, I don't know if that makes sense. Now, there are those that speculate that democratization of technology will enable small and mid sized companies to behave like big companies. I think to some extent that is true, but at the same time, the investment that is required in some of these enterprise platforms, you think about some of the yardies and real pages of the worlds that everyone is plugging into. I mean, those are massive investments in systems and software and licensing and training and so on and so forth, and virtuous circle back to property management. Right? So a lot of the companies, small and mid sized companies that are facing that kind of investment, that's one of the things that typically triggers them to start thinking about, gee, do I really want to stay on the treadmill of staying current and investing in all this technology, or do I want to outsource it to someone like a bosouto or a greystar who has the size and scale to make those investments and they can do the property operations, I'll asset manage the hell out of them. But let me see that space to someone that has more critical mass or not, but that's an absolutely critical decision that every company in the real estate space is facing today and increasingly will have to face going forward.
• 1:30:03
  Speaker A: So what you're saying is it's a tool that your strategy framework uses in helping design the plan. In essence, you're looking at an investment here. So the question is, as you said, do you want to be on the bleeding edge, the cutting edge, or closely behind? Is that the lifecycle of the company type of situation? You're willing to take the risk on taking a more aggressive policy there, or would you, maybe to get an advantage and to cut a niche? You might take a risk and take a bold move on doing it. So, for instance, I interviewed a company called Rockerbox, and the company is a. What they do is they have an analytical tool for developers of apartment buildings to determine a demand of different aspects of the development process. So the finishes in the units, the amenity package, the location, all these things are added up into this equation. And so there's a monthly. It's a SaaS kind of, you buy it and then you apply your project through this lens. It's an expensive one, but it could be an advantage for some company that's trying to get an advantage in something like that. So the question is, how do you make that decision?
• 1:31:24
  Speaker B: Yeah, well, I'm sure that company is not a real estate company. It's a technology company.
• 1:31:30
  Speaker A: Yes, they are.
• 1:31:31
  Speaker B: Well, they are a real estate company.
• 1:31:32
  Speaker A: Well, Rockerbox is a technology company.
• 1:31:34
  Speaker B: Well, that's what I'm saying. Yes. So for them, their strategy is technology, of course, for the companies that are deploying that.
• 1:31:41
  Speaker A: I'm talking about hiring them.
• 1:31:42
  Speaker B: Yeah. Right.
• 1:31:43
  Speaker A: So licensing their, licensing their software.
• 1:31:46
  Speaker B: Absolutely. So that, you know, I think what I.
• 1:31:48
  Speaker A: What I saw in the costar, for instance, you know, when do you get Costar? Why would you have it?
• 1:31:53
  Speaker B: Yeah, the last ten years, I saw, you know, companies sort of doing beta tests and trying to do some of the things on their own and with limited success. And there's, you know, there's really only a handful of companies out there that are the Avalon bays of the world or the Boston properties of the world, that, you know, can really afford to make those kinds of proprietary investments in technology and systems. And I think that the path for most companies is going to be to leverage technology companies that are creating solutions for the real estate industry and licensing that technology. Again, being a close follower but not a developer, I think the number of companies that really can afford to take that kind of risk and invest that kind of capital is, is few and far between.
• 1:32:39
  Speaker A: So, reflecting back on when Gotti and you first conceived the idea of writing the first edition of your book, or second edition to today, what are the most significant changes you've witnessed in real estate organization strategy and why?
• 1:32:53
  Speaker B: Yeah, so the period from 2007 to today. Yeah, well, we were already seeing the, we talked about this already fusion of institutional capital into the business in a major way, and that just accelerated at an exponential pace in the last 20 years. So that, I think, is one of.
• 1:33:16
  Speaker A: The biggest changes which was forced on the industry because of what happened post the financial crisis to some extent. Right.
• 1:33:23
  Speaker B: Well, I think it was a consequence of that and also real estate really growing as an independent asset class that had allocations from institutional capital providers, so suddenly they needed to ensure that they had 20% of their nav in real estate. And so how are we going to do that? I think that propelled the real estate industry in that regard. I think the general level of sophistication among real estate companies. Right. I mean, so historically, you know, we're a bunch of cowboys, right, fighter pilots.
• 1:34:02
  Speaker A: You know, those trammel crows of the world.
• 1:34:04
  Speaker B: Yeah, yeah. Now I think that. And again, I think over the last 20 years, companies have been moving in this direction, you know, are more corporate, more sophisticated. You know, we are using big data and analytics. We are sophisticated asset management managers. We are thinking about brand and brand equity in the business, much more so than we were 20 years ago as a legitimate asset class and investment choice for institutional capital. So I think those things are probably the growing sophistication and the infusion of institutional capital are some of the biggest changes that we've seen.
• 1:34:46
  Speaker A: Well, I said I wanted to postpone one part of the conversation.
• 1:34:49
  Speaker B: Now I'm bringing it up.
• 1:34:51
  Speaker A: So the pandemic created a unique set of circumstances. The retail industry was just like shocked. Gary Rapacort, I interviewed him, he was crying, actually about it with some of his tenants. The hotel sector completely shut down, almost non existent. Nothing like that's ever happened before. So, you know, you brand new events. So I remember in reading your preface, I think in your book, you said the pandemic, did you know it jolted people in a way that no one really thought of before, and it was another reason. So I bring that up to think that maybe that was another. So it was more of a supply real estate issue. Capital markets really didn't have an impact on that, per se. And then what happened as a result, the federal government comes in and oversupplies the market with cash to try to solve the problem, and then that creates a capital markets issue because you can't throw money at something and think that people are going to act rationally. They're not.
• 1:36:01
  Speaker B: Right? I mean, the pandemic was, was classic black swan event. Right? You cannot plan for that. You just can't. And I did a number of interviews with developers all over the country about some of the things that they were doing in real time to react. I mean, creating virtual tours of apartments and creating DIY online, how to unclog your sink because no one wanted to have a maintenance person in their apartment. You know, touchless technology and elevator cores and office buildings and, you know, all kinds of stuff.
• 1:36:44
  Speaker A: Remote pickup of shopping centers for food and all that. Right, exactly.
• 1:36:49
  Speaker B: So everyone was kind of learning on the fly.
• 1:36:51
  Speaker A: Right.
• 1:36:52
  Speaker B: And what I remember people were saying in 2020 and 2021 in particular was the advent of e commerce and delivery. And all of these sort of virtual technologies was in the works already.
• 1:37:10
  Speaker A: Exponential, though.
• 1:37:11
  Speaker B: But it just accelerated at a pace that was unimaginable. And it was very stressful for lots of company and people that were identified as essential workers to put themselves at risk. Of course, I don't know what you were doing, but I was able to sequester myself at home with a computer screen and stay connected to my colleagues via happen to be Zoom. But, you know, there are people out there on the front lines who are, you know, who put themselves at risk. And it's just, you know, and a lot of our clients, particularly in, you know, the property management business, they were essential workers. They work from home construction work. Well, a lot of construction workers were sent home for no non essential work, but residential was deemed essential.
• 1:37:57
  Speaker A: Yeah.
• 1:37:58
  Speaker B: And so, yeah, so, yeah, I don't think you can plan for that. I don't think it's wise to plan for that. It created an environment where we improvised and learned to do new things on the fly. Fascinating from an academic standpoint. Terrifying to live through. Yeah.
• 1:38:17
  Speaker A: So you're, now you're in a new environment. You have to rethink things that you never even thought could have happened before. Right. So it's a whole different strategic process, right?
• 1:38:28
  Speaker B: Yeah. And I don't think that a lot of companies engaged in new strategic thinking. They were in emergency reaction mode.
• 1:38:36
  Speaker A: But now you're thinking strategically at this point.
• 1:38:39
  Speaker B: Well, sure. So now, you know, how do we take what we learned right over the last three, four years and use that to our advantage? And I think of the experiment with their conso development, which is a new community that had no on site staff, all virtual tours, so on and so forth. That was in the works well before 2020. It came to market in November, I think, of 2020, and it just happened to be like, what a great, what an awful coincidence. But they learned so much through that process that now they're thinking about deploying that in other locations where that makes sense. So to some extent, it was helpful for us to learn new tricks, but what an awful way to do them.
• 1:39:30
  Speaker A: Of all the clients you've served, which situation was the most satisfying due to the advice you gave and how they were able to implement it towards success?
• 1:39:41
  Speaker B: Well, for me personally, there's been a couple that fall into a sort of a category. And for me, it speaks to the power of strategic planning and actually setting goals. So I've worked with a number of real estate companies where they had never done strategic planning really before. And through the exercise of strategic planning, they set what they thought at the time were ambitious goals. We're going to set a stretch goal for ourselves that looks like this and like, oh, my God, that's, you know, wouldn't that be great? But, wow, that's scary. And, you know, five years out, we want to look like this now let's back up and think, okay, well, what do we need to do to put ourselves on the path to get there? That's kind of the exercise.
• 1:40:23
  Speaker A: Sure.
• 1:40:23
  Speaker B: And three years into that plan, more often than not, companies had met or exceeded their five year goal and came back and said, I can't tell you how energizing it was to actually have a plan and to have a goal and have everyone moving in the same direction. And now we're ready to revisit our five year plan in year three and set the bar even higher. So without naming names, there's probably a dozen companies that I've worked with over the years that are in that category. And that to me, is the most satisfying thing, is to help people realize their potential and exceed their expectations.
• 1:41:02
  Speaker A: For listeners out there, I want to bring up one company and they're not a, they're a real estate company, but they're more an investment company. And that's Walker and Dunlop. I don't know if you heard my interview with Willie Walker.
• 1:41:15
  Speaker B: I have not, but no.
• 1:41:16
  Speaker A: Or if you're familiar with their process, they have a five year plan that they had started when he took over the company from his father, Mallory.
• 1:41:25
  Speaker B: Yeah.
• 1:41:26
  Speaker A: And that five year plan just, it just exploded. And he, every five years, he was able to overachieve his five year plan each time. And consequently, he's multiplied the value of his company probably 20 plus times now. 20 x, if not more, since he started, took over the firm.
• 1:41:46
  Speaker B: I mean, again, I think it speaks to the power of actually having a plan and a goal as opposed to just sort of like, muddling through.
• 1:41:54
  Speaker A: Yeah. Good. An example as I can think of in the real estate industry today. So let's shift to personal things if we can. Charlie, what are your life priorities among family works and back?
• 1:42:06
  Speaker B: Well, I think I've done a good job of the consulting business. You know, the client is always right, and you're up, you're on call 24 hours. It's a stressful environment. So I wish I could say I had a great life work balance over the years. Probably not so much. I was engaged, you know, in every aspect of my, my two kids growing up and wouldn't, wouldn't have missed it, you know, and I was, you know, elbow deep and changing diapers and doing, you know, soccer games and everything over the years. Now she's, she's 26, he's 23. So they're there, semi launched, but that's great. But, you know, so, but I did it. I think I did a good job of trying to separate my personal family life from my professional career. And, you know, so I, when I did go home, it wasn't always at 530, but, you know, when I did go home, cell phone was, you know, put down. I wasn't every evening, you know, because it was important to have a family life life, you know, who wants to live to work, right? You're working to live. This is the mantra. So I think finding that balance has been important for me and speaks to the longevity, you know, that I've been able to enjoy here at RC Elco and the career in general.
• 1:43:24
  Speaker A: Giving back.
• 1:43:25
  Speaker B: Well, so our company has a foundation, and the focus of the foundation is affordable housing. And so that's a particular passion of mine and trying to figure out a way for this industry to get involved in providing essential housing. I'm constantly shouting into the wind that why does the real estate industry have to bear the burden of a societal need? But the cards that we've been dealt. So right now we're trying to work with some of the influential organizations in the industry, like NMHC, them think about toolkits and ways to use tax abatements and other creative solutions to increase the supply of housing in general, which we all know supports.
• 1:44:14
  Speaker A: Have you worked with the Amazon people with regard to their investments in the market?
• 1:44:18
  Speaker B: I have not. We've been involved with the toilet center at ULI, which, you know, which country is about workforce housing, not necessarily subsidized housing necessarily, but, and we've written a lot as a company about, you know, the missing middle in the country. So, you know, it's a big and important issue. And I feel good that our firm has been able to contribute in a small way to try to make a dent. But it's going to take all of us, and it's going to take governments and communities and the private sector to partner and create a solution, because it's just not tenable the path that we're on right now in this country.
• 1:45:02
  Speaker A: Which real estate and industry professionals inspire you and why?
• 1:45:07
  Speaker B: You mean other than you? Hardly. Oh, wow. I mean, there's so many icons of real estate that I've, you know, looked up to over the, you know, the Samzells and various turtlenecks of the people that I've. That I've had close contact with and good relationships and particularly in strategic planning. And Simon's, you know, Ron Toiliger is one. When we were working with TCR back in the day, that was a fascinating experience. Working with him. You know, Ron, as you know, is just a tour de force and an amazing individual and fascinating guy and interesting from a strategy standpoint to what he is able to achieve multiple times. Right. TCR has had, like, you know, three incarnations over the years, and he's no longer involved in the latest incarnation. But rinse and repeat is just a fascinating.
• 1:46:00
  Speaker A: When I moved here, it was Crow Tourliger, and Michaux was the name of the company.
• 1:46:04
  Speaker B: Well, and that was the second person I was going to mention is Dick Micheaux, who I was working with at Crow Residential, mid Atlantic, and through the IPO with Avalon and Avalon Bay, and worked with him on some things outside of real estate. Just a fascinating, brilliant guy, very strategic thinker. What a wonderful man. I mean, he's a guy who I think sort of brought. His background was in the navy. I think he was a submariner. If I'm not mistaken. His background. But he brought a level of sophistication and professionalism and management to the real estate companies, and he was the perfect choice for the first CEO of an IPO, Avalon, at the time.
• 1:46:51
  Speaker A: That's great. What advice would you give your 25 year old self, Charlie?
• 1:46:56
  Speaker B: Oh, good God. What would I tell myself? Hmm. That's a. I remember reading that question, and I thought about it, and I'm not sure I came up with a good answer. There's all kinds of things I would tell myself that were stupid and so stop doing.
• 1:47:14
  Speaker A: Right.
• 1:47:15
  Speaker B: You know, I think you have a.
• 1:47:18
  Speaker A: 26 year old child now. What do you. What are you telling.
• 1:47:21
  Speaker B: Well, but, yes, but sure, she's. She's pursuing a PhD program in microbiology.
• 1:47:26
  Speaker A: Oh, that's neurology.
• 1:47:27
  Speaker B: So I really had no advice for her. No. And the boy is pursuing a career in the theater. So, again, nothing that I have to help with. I guess what I would tell myself, 25 year old, is follow the money.
• 1:47:42
  Speaker A: Okay. Interesting.
• 1:47:44
  Speaker B: In real estate, I think that is a mantra that would serve a lot of market participants. Well, figure out what the capital markets want and where they are going, wherever you are in the industry, and that will serve you well in a career, whether you want to be in finance or whether you want to be in development or whether you want to be in consulting. I think that advice, if I had followed that more closely as a 25 year old, I'd be even more fabulously successful, if that's possible.
• 1:48:21
  Speaker A: Well, it's interesting. That's probably the most volatile part of our industry, is the capital markets.
• 1:48:25
  Speaker B: Well, there's certainly no question capital markets have their own cycle. They do from the economy, and they're all intertwined, but absolutely, yeah.
• 1:48:33
  Speaker A: I was in it for almost 40 years.
• 1:48:37
  Speaker B: I remember doing some strategy planning work with Michael Levy, who's now the CEO at Crow holdings. And I remember him. The thing he told me a couple of years ago, just stuck in on private equity is the best business on the planet.
• 1:48:52
  Speaker A: So did David Rubenstein say the same thing? Of course. He said that many times in his interviews.
• 1:48:58
  Speaker B: I think it takes a certain personality and individual to be in real estate, private equity, and to take the risk. And consultants like me, that's probably a little rich for my blood, but I thought it was really good advice.
• 1:49:12
  Speaker A: All right, if you could post a statement on a billboard on the Capitol Beltway for millions to see, what would it say?
• 1:49:17
  Speaker B: Charlie? It's about the supply, stupid.
• 1:49:22
  Speaker A: There you go.
• 1:49:23
  Speaker B: Right. So, again, getting back to affordable housing, you know, we've been having a debate in this country about solutions to developing, you know, producing and preserving affordable housing. And everything I have learned over my career has taught me that increasing the supply of housing, regardless of where it is on the spectrum, will contribute to the preservation of affordable housing, even if you are not directly producing affordable housing. Right. So I think of, you know, think of, think of places like San Francisco and Boston and even Washington, DC. To a certain extent. If you constrain the supply of housing, what happens is that, you know, young, affluent people go into challenging neighborhoods and put granite countertops in crappy homes. That sounds terrible. But as opposed to Houston and Charlotte and Atlanta, where there's lots and lots of housing, and the market does a good job of filtering because the supply is available. And most people with sufficient incomes want to buy things that are new and shiny, and they don't really want to renovate an old neighborhood, a crappy house in a challenged neighborhood. But if that's what's available, that's what's going to happen. So again, increasing the supply, I think. And NMHC is doing a really good job, and I think they're actually getting through to members of Congress. They've been on an intense lobbying campaign. Doug Bibby was doing this, and now Sharon Wilson, Gino is now doing that as well. And I think she's making great progress in getting that message across to lawmakers that creating opportunities to increase the supply regardless of where it is on the price spectrum is one of the really important tools that we have in our kit to preserve and develop affordable housing.
• 1:51:21
  Speaker A: Well, Charlie Hewlett, thank you very much for joining me on icant BTO.
• 1:51:26
  Speaker B: My pleasure. Thank you very much.