November 9, 2022
Course Correction – Now Overdue!
Dear Real Estate Leaders,
This article was originally published at RealTrends.com on March 29, 2022.
While we are republishing the same writing from March ’22, we are in a very different environment of geopolitical issues, inflationary times, and escalating interest rates. The messages remain current, the corrective actions remain relevant; it’s all in how you approach your situation.
Will it be “visibility through adversity” or “bracing for hard times?”
Situations like today's market is what we help CEOs navigate. Enjoy the repost! Call me if we can be helpful!
Having started my first residential brokerage business in Marin County, CA in 2006, we enjoyed 20 months of hyper-growth as a start up only to get slammed by the September 2008 meltdown of the equities markets – The Great Recession!
Small, boutique offices, highly qualified and nimble professional staff striving to make our real estate professionals as successful as possible – and a fiscal discipline required by a start up without venture capital funding. In Q4 ’08 revenues [GCI] fell by 40% and stayed there until March ‘09.
We developed a weekly fiscal focus that proved successful for the next decade. Every Friday @ 5 PM I received a report on new listings, new escrows, closings, and a rolling 90-day cashflow forecast. We had no choice but to manage the survival of the business.
We closed the Pacific Union acquisition in August 2009. Our due diligence was all paper-based, no face- to-face meetings with the management team. Our only interaction was with GMAC Home Services [then owned by Brookfield].
Once closed, I remember my first meeting with then then CFO of Pacific Union. I asked “how does cashflow look for the next 90 days?” We now own the business doing $50 million in GCI and an annual run-rate net loss of ($3.7 million).
The then CFO said, “we don’t worry about cashflow, GMAC writes all the checks.”
I was clearly stunned and afraid.
That next day we implemented the exact same Friday @ 5PM reporting system described above and it continued for six hundred and twenty (620) Fridays until a year after we were acquired by Compass.
I share this as they are instruments needed in bad times as well as good times. The lifeblood of a brokerage business.
Our industry has enjoyed ten (10) years of dynamic markets and the last 20+ months likely the finest of modern-day times. Net income has never been better.
Now is the time to course correct for the future – during 2022 -which may be another excellent year.
Now is the time to review every expense in your business. Now is the time to correct the P&L for a market that will clearly adjust in next two (2) years. Inflation, rising interest rates, geopolitical issues, decreases in NCD % all take a toll on your P&L. Top line growth via units sold and price appreciation tends to mask all inefficiencies.
Here are many of the actions we executed on and that you may consider.
- Closed our HQ office. HQ team worked in local branches near their homes.
- Routinely closed non-performing branch offices – especially in M&A situations.
- Expiring leases were typically vacated for 50% smaller offices.
- Eliminated “training department” and made sure professional staff was experts on technology resources.
- Optimized professional staff levels based on agent to staff ratios and shared workload across offices.
- Annually reviewed every “consultant” relationship to reduce spend.
- Annual audits of technology users’ vs subscription to reduce spend.
- Annual audits of marketing and advertising programs to reduce spend.
- Annual audits of Misc. or Other expenses to reduce spend.
What will you do with your real estate portfolio of offices? They have generally been vacant in for the last 24 months and your results are vibrant. Could you get by with 25% - 30% of the footprint you have today – tough question, but with declining NCD %, something must give.
Real estate professionals need vision, leadership and a sense of community. Some of our most valuable programs were those getting real estate professionals together – the “MIX.” Six times a year we would pay for 25 professionals to fly from southern CA to northern CA to meet with 25 other professionals – our costs were 25 airline tickets, hotel rooms, a bunch of cocktails and a few meals. The comradery, relationship and deal flow that followed was amazing.
I’d rather do twelve MIX’s a year that fund empty offices.
The point is not to take me literally, please take these thoughts directionally. Course correct in good times, well before a market correction.
Finally, the communication plan around changes as described above is often more important than the changes themselves.
This is Where We Are Now!
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