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Monthly Archive for: ‘December, 2012’

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    What You Should Know If You Work With Me

    One of the most exciting things about a young career in real estate is that you get to know yourself and your quirks as you figure out your place in this business. Learning simple things like how, when, and where you like to work is incredibly useful if you recognize and use that info.

    With that in mind, I try to be keenly aware of what conditions make me most effective and what type of environment will allow me to thrive.

    So what follows is a guide to any future business partners.

    It’s not an ultimatum. Nor is it a rule book. In fact, this is just a snapshot of what makes me most effective in business right now. It may change over time, but I doubt it. Most of these are lifelong preferences/ideas and not passing fancies.

    So, here is what you should know about me if we are going to work together . . .

     

    A. Ethics are non-negotiable

    If you and I don’t see eye to eye ethically, we shouldn’t be partners. I know that sounds preachy or moralistic, but if we are coming from different ethical perspectives we won’t get along in the long term. There are so many deals to be done and properties to see that no single deal is worth sacrificing your ethics. If there is any ethical “gray area” in a deal, kill the deal. We’ll find a better one anyway. Don’t hurt other people, don’t sabotage, don’t exact revenge, don’t trick people. You can make money being honest and upright with everyone and, to paraphrase Twain, there is less to remember when you tell the truth.

     

    B. I love helping other people make money or solve problems

    Maybe this plays to my generation’s obsession with meaning over money, but being able to help people resolve financial problems or come to mutually beneficial arrangements is fun to me. That makes me feel like I spend my day doing more than try to make boat loads of money. That is more fulfilling to me than a six-figure paycheck (some people get paid six figures right?). I’m not curing cancer or solving water shortages in Africa, but seeing my allies and adversaries walk away from the closing table with a smile is satisfying to me.

     

    C. I am honest to a fault

    This may come across as arrogant, but trust me when I tell you that my penchant for extreme honesty is not always an asset. It’s great that people know they can come to me for direct, honest answers and information. But I tend to divulge more than I should and would rather have all parties know all available information. That doesn’t mean I go out of my way to tell trade secrets to my competitors, but asymmetry of information bothers me even if it is tipped in my favor. So, if you are going to partner with me, you should know that I will always tell you the truth, but you should also know that I will tell everyone else the truth. Like I said, that is both an asset and liability.

     

    D. I would rather you make more money than me

    Let’s say that I own a company and you are the CEO. I will gladly pay you $150k to my $100k. Or $70k to my $50k. If you are my partner, I want you to know how much I value you. You should know that I appreciate you enough to compensate you beyond my level of compensation because I think you are more important to the partnership than I am. If you are ever unsatisfied with your compensation or percentages, talk to me. I want you to feel like I pay you more than you are worth. Is that a way for me to get rich? Probably not. But having happy partners who love working with me will mean more to me than the zeros in my Suntrust account. And happy partners are productive partners. Productive partners are lucrative partners. So keeping you well paid will work out fine for me in the long run anyway. Even if it doesn’t, I doubt I will regret paying a partner a bunch of money. If I recruit you, you deserve it.

     

    E. I give money to charity

    Maybe I should change this header to “I run corporate finances like I run personal finances.” We operate on 80% of our income because 10% goes to charity and 10% goes to our emergency fund. We can argue over the other 80% until we are blue in the face, but that 20% is untouchable. We can decide together which charity or charities deserve our cash. When revenue increases, I’ll probably increase our cash holdings. I don’t like debt (especially corporate debt). Having been a lender and now a successor creditor, I can tell you that the borrower truly is slave to the lender and I want to minimize that with my business partners. I am pretty conservative with my money and like my war chest to be heavy. Food for thought for anyone expecting 50% returns on their capital and maximum leverage on their portfolio. You probably aren’t a fit for me.

     

    F. I have a life

    I could throw around the cliche about “working to live instead of living to work,” but you probably already know that about me. I coach baseball. I am in two terrific men’s bible studies. I run this website. I have a personal investment portfolio I work on weekly. I work out. I run. I am crazy about my wife and dog (and one day kids, hopefully). All of that is to say that there are several things that demand my time weekly. You, as my partner, deserve my time and should demand it from me. But understand that I will draw the line. I don’t answer the phone on Sundays or during dinner with my family. If you are the kind of person who works until 10 PM every night and expects me to do the same, talk to someone else. I’m not that guy. I work my brains out when I am in the office and I strive to be the most efficient man in the business, but I do not throw hours at a problem and I will not sacrifice my family life for our financial gains. Sorry.

     

    G. I want people to love working with me

    Perhaps my first goal in creating partnerships is to structure an environment where you want to come to work every day. I want your head to pop off the pillow every morning and know you have a brother ready to go to battle with you. Sure, there will always be problem tenants, difficult deals, accounting mistakes, government delays, and a thousand other headaches that come with deal-making. But I hope you enjoy fighting those battles with me. If you don’t, talk to me about it. Let’s make an environment that you love and find fulfilling.

     

    H. I trust people

    Probably too much. I love working with my friends and I love that our industry is full of so many great men and women. The problem is that I am inherently trusting and will assume that everyone I meet is a good person unless they give me a blatant reason not to. I wouldn’t say I am gullible, but I do tend to give people the benefit of the doubt and allow them to impress or disappoint me. So it would be useful to have a potential partner who has a healthy level of skepticism and pessimism to balance out my sunshine and rainbows.

     

    I. I value creativity and flexibility

    Don’t like what you’re doing? Change it. Think the market is shifting? Shift with it. Think one property type is overheated? Let’s pursue others. Wanna buy cell towers in Botswana? Cool. Let’s figure it out together. I think the days of “I’m a single tenant retail broker for 40 years” are behind us. Shift. Adapt. And have fun. I can be as flexible and creative as you like and I hope you challenge both of us with new ideas, strategies, and investment models. Bring it on, hot shot. We’ll figure it out.

     

    J. I’m a wanderer

    I may be speaking too soon, but I don’t think I would be satisfied with a career that only involved Atlanta. I love Charlotte. Nashville has impressed me. Phoenix is growing like ATL. San Antonio is under the radar. Chile is undervalued. India is ripe. While it is way to soon to expand anything oversees, it is fun to be strategic about national and international investment platforms depending on your capital. So, while I may never own apartments in Melbourne, I would be surprised if I only work on Atlanta deals for the rest of my career. Atlanta will always be home base, but there are other interesting cities and opportunities all over the world and our business is getting more and more connected globally every day.

     

    K. Answer this question:

    “I don’t know anyone who is better than me at______”. Fill in that blank and then do that blank everyday. Every minute you spend not doing that “blank” is a wasted minute. I will do my best to outsource, offshore, delegate, and automate everything else for you. If you really want to shine, you need to do that “blank” as often as possible every day. We will have to scramble and do everything ourselves for a little while, but we will be keeping an eye toward focusing on what we are best at doing.

     

    Now the real question is: Who would want to work with someone like that? I dunno. But just in case someone thought it was intriguing, I figured I would write it down.

    Do you have any special quirks or stances that make you productive? Anything unique to your ideal working situation? Let me know in the comments.

    – Duke

     

     

  • 2012

    12 Lessons I learned in 2012

    Interesting year, 2012.

    Multifamily seems to be (temporarily) made of gold and debt markets have thawed further.

    It was a great year for some, terrible year for others, and just mediocre for the rest of us. And what I missed in compensation I made up for in knowledge.

     

    Allow me to share my top 12 lessons from 2012:

     

    1. People want to talk to me when I’m in PE.

    This is actually disappointing. I remember when I was working for myself (and my dad) and there were a few people who had trouble returning my call. I know we are all busy, but, all of the sudden, those exact same people can’t wait to get in front of me and see how they can help on our billion dollars worth of assets in GA. Don’t think I don’t notice that. And don’t think I don’t notice the people who always called me and had some time for me.

     

    2. Foreclosure sucks.

    It isn’t that complicated and you can take a property back in about 45 days in Georgia. So, it is simple . . .  but it sucks. Taking title, ordering appraisals, running environmental reports, estoppels, gas stations, dry cleaners, confirmation hearings . . . it all sucks. I do it because some people make me do it, but I do everything I can NOT to foreclose.

     

    3. Litigation in general sucks.

    Only attorneys win when we decide to litigate. I wish people would just tell me the truth in our first meeting and we could save everybody thousands of dollars. Litigation is fun for 10 minutes and then it is terrible.

     

    4. Partners are essential.

    As I have started to work on my own projects, I have learned that the right partner is worth whatever he/she demands to be paid. If partnerships were an equation, one plus one wouldn’t equal two. One plus one would equal forty. Properly leveraging the skills and talents of the right partner will help a business grow exponentially (rather than linearly).

     

    5. Our legal system is disappointing.

    I had a judge rule against me in court because he felt bad about what would happen to the other party if he ruled for me. No word on the actual law or my legal claim. Just his bad feelings about the loser. It was like he projected that I could take the loss more easily than the other party (which is true) and just forgot about the law. Never mind the fact that I have been open and honest with everything in the entire case and the other party has done everything they could think of to trick us, make us stumble, and game the legal system. Disappointing, to say the least.

     

    6. The best way to learn (retain) is to write.

    Looking back at the posts this year, I am amazed at 1) how much I have learned and 2) how much I have retained. It is easy to learn something once (think cramming for a final in college), it is difficult to retain and reuse that knowledge in the future. The best way I have found to retain and reuse that info is by writing these articles. They force me to repackage and explain in my own words the difficult or foreign concepts I am learning every day. Talking about it and writing it in a Moleskine isn’t the same. Writing articles will do more to grow my tool box long term that just about anything else I do.

     

    7. People overemphasize specialization.

    Over the past twelve months I have worked on golf courses, self storage, apartments, raw land, mobile homes, office condos, retail condos, unanchored retail, single tenant retail, industrial, and a cell tower. What’s my specialty? I dunno. Maybe negotiation. When I got into this business, I was told by most people to specialize and become the go-to-guy for that property type. Horse feathers! I don’t want to get into why that isn’t necessary here, but it isn’t. At least not for my career goals.

     

    8. People also overemphasize experience.

    I don’t foreclose on 20-somethings. I don’t sue 30-somethings. It’s all the 50s, 60s, and 70s that got into trouble. Why does everyone seem to think that experience will solve all problems? Fallacy, my friends.

     

    9. 99% of our industry is technologically archaic.

    I have been shocked how few people actually use technology and software to make their days more productive and their time more efficient. If it costs money, most people aren’t interested. If it costs money and takes a little time to figure out or set up, forget it. How many CRE brokers have corporate facebook pages? How long did it take them to get one? Exactly.

     

    10. Equity is king.

    Oh, you have 5 acres in W Midtown tied up and think mixed-use is a fit? Neat. Now what? It isn’t all that hard to figure out a cool use for a property or to identify potential investments. It isn’t even that hard to find decent debt for properties now that some of the smoke has cleared and the debt market has thawed. It isn’t hard to find an average property manager. What is difficult is finding equity partners. Those with free capital who are willing to invest it in CRE are few and far between and he with the best equity investors wins.

     

    11. Big boys are bullies. (And the time of reckoning cometh)

    I have had to order a bunch of appraisals (as I mentioned above). And I have needed to place brokers as property managers and listing brokers. The biggest brokerage houses in town (and in the world) like to bid on these deals. Rarely are they the best value and rarely do they come across as the guy who is going to go the extra mile and run through a brick wall for me. Frankly, they seem to think that since they are so big and reputable they deserve my business. Not happening. I’ll take the young hustler who will call every potential buyer within 600 miles over the guy with the sexy name on the business card every day of the week. Plus, I work for a $40 Billion company. We can be a bit of a bully ourselves (to my chagrin). Be careful trying to push us around . . .

     

    12. Stress reveals character.

    I know I have said this before, but it bears repeating. When people have their back against a wall, you find out their true character. Everyone was happy and friendly when money grew on trees in 2005. When you start getting sued and foreclosed upon, I get to see what type of man (or woman) you are. It is fascinating and I take note of those people I will be calling for partnerships in 5 years, and, more importantly, who I certainly won’t be calling. Look around, listen, pay attention, and you will save yourself some headaches across the course of your career.

     

    So, those are my top 12 lessons from this year in commercial real estate. They are based upon my experience working in the private equity/distressed debt arena and shouldn’t be seen as universal. What did you learn? Think any of my lessons need revision? Let me know in the comments.

    – Duke

  • Book Review: Resilience – Why Things Bounce Back

    Resilience: Why Things Bounce Back

    Resilience: Why Things Bounce Back

    Can you see why this book’s title would catch my eye? Interesting idea, right?

    While it wasn’t exactly what I expected and I’m not sure I love the author, Resilience does offer compelling examples of resilient systems and organizations and offers a few theories on how to create a similarly resilient entity yourself.

    Like most nonfiction/business books Resilience uses anecdotes and examples from both business and the environment to illustrate what true resilience means. Zolli uses Mexican corn riots, South Pacific tribal fishing, and the Wall Street meeting over the rescue of Lehman Brothers. Let’s call this the Gladwell Approach (he wasn’t the first, but he is one of the best).

    Anyway, Zolli argues that there is a sweet spot of interconnectivity. Systems that are too connected, i.e. Wall Street circa 2008, are much more vulnerable to catastrophic failure given a single significant downward incident. It isn’t much of a stretch to say that this financial system was too connected if a few of the big boys can falter and every financial institution in the world feels the ripple effects. He also argues that a certain level of connection is crucial. Isolation and resilience do not walk hand-in-hand, Zolli claims.

    I particularly enjoyed the book’s fishing examples. Zolli gave historical cases where a certain species had been over-fished and therefore decimated almost to the point of extinction. Then he recounted the ways a system would nourish the species back into abundance. Fascinating.

    Is this a life-changing book that will forever alter the way I view business models?

    No.

    But it is fairly interesting and I like drawing parallels from nature to business models. Zolli does that fairly well.

    What is will criticize is tone. Great writers strike a balance between formality (showing expertise and some appropriate jargon) and informality (making it readable for the general population). Zolli is too formal and reads like an academic. I have a theory that people who truly master their opinion can explain it to an 8 year old. No 8 year old on the planet would understand this book. Choosing longer words in lieu of shorter, simpler words just makes me impatient and doesn’t impress me. As a writer myself, I appreciate word choice and I think this book does a below-average job on tone and readability.

    Also, as a small side note, I read the audio version and the narrator had trouble with “s”. His “sss” was more like “sch” and it bugged me every time I heard it. Not Zolli’s fault, but you’d think and audiobook company would hire a reader without speech quirks.

    All in all, meh.

    Read it if you like interesting anecdotes. Skip it if there is something more interesting on your shelf.

     

    Resilience in Two Sentences: Nature and business can provide poignant examples for resiliency and one needs to be carefull of connectivity. One key to resilience is finding the right amount of connectivity to fend of small losses while avoiding system failures.

    Pros: Interesting analogies, well-reasoned examples of resilient and non-resilient systmes/businesses

    Cons: Overly academic and verbose. Could use more clarity for thesis.

    Target Audience: leaders seeking to create a lasting system built to weather all storms.

    This book is best for: The businessman who has given no thought to cyclical volatility and down sides.

    Overall Rating: ♦♦♦ (out of 5)

    Here is the Amazon link to buy this book:

     

    Ratings Guide

    ♦ = Not worth your time

    ♦♦ = May be worth your time if it is specific to your industry or interests

    ♦♦♦ = A decent book and worthy addition to your library depending on your interests

    ♦♦♦♦ = A great book and an excellent addition to your library.

    ♦♦♦♦♦ = One of the all time classics. A must-read for anyone and everyone.

  • The Tale of Three Brokers

    Brokers are salesmen, my friend. Seller beware!

    Once upon a time, there was a young man working in the land of commercial real estate. This gallant lad owned several types of commercial properties around the kingdom and was charged with selling them.

    To do so, he knew that he would need the help of specialists. He began to speak to these “brokers” to determine the value of each property and the proper price for each. He called on several different brokers to provide their opinion of value on the property.

    Almost immediately our hero noticed that these Broker’s Opinions of Value, or BOVs, varied widely. At first, he assumed that the fluctuation was due to the turmoil and bifurcation in the market of property buyers. But as time progressed, he began to see patterns with these BOVs. He noticed that there were three brokers in the land:

    Broker A would be charged with valuing a property that was probably worth roughly $1,000,000. He would conduct his diligence, interview tenants, research the submarket, and return to our hero with a projected sales price of $1,500,000. “The market’s hot! Lots of buyers for this property in this market” cried Broker A.

    Broker A was quite clever. He knew the only way he made money was by selling property. The only way to sell property was to get listings. And the best way he knew to get listings was to promise his clients high prices and then shrug his shoulders when the property sits on the market for a year, unsold. “Tough market. Bad luck. Let’s drop the price and just move this bad boy!” he says to his clients. He eventually sells the property for $1,000,000.
    Broker B gives his BOV at $750,000. He claims “Tough market, sir. This one is going to be a challenge. I will need to use every trick in the book to get this one moved!” Just in case you find a sucker, he lists it at $1,250,000. All of the sudden, you have an offer at $1,000,000 and you take it! What a hero Broker B is for that miracle price! He must be a great broker!
    Finally, Broker C gives his BOV of $900,000 to $1,100,000 and he tells you that the price will eventually depend on the buyer’s access to debt. Broker C also sells the property at $1,000,000.
    So, what’s the moral of the story? Slow and steady wins the race? One in the hand is worth two in the bush?
    Nope.
    The lesson is that brokers are salesmen. They only get paid when they sell you on the listing and sell the buyer on the purchase. For the sake of argument, let’s say that all 3 brokers are equally talented at selling to buyers. Now we can distinguish how each sold you on the listing.
    Broker A over-promised, blamed unforeseen market factors, and then sold at market value.
    Broker B used the classic under-promise over-deliver technique.
    Brokers A and B would never admit they are doing this, of course. “I’m very aggressive” says A. “I want to be conservative and not over-promise to my clients” say B.

    Broker C just tells it like it is.

     

    When I am ready to list property for sale, I want Broker C. I have access to CoStar. I speak to other brokers. I do my homework and form my own opinion of the property’s value range. I’m not always right, but I’m usually close. And when a certain broker always gives BOVs well above my estimated value, he is Broker A. When another broker consistently gives values below my value, I label him Broker B. I’m always looking for Broker C.

    Broker C is Goldilocks. Not too hot; not too cold; just right.

    So, seller beware! Brokers are some of the best salesmen in the world. They will promise you the world, then shrug about the market. They will bash the market and then get a “miracle” price. The onus falls on you, seller, to do your homework, research the market, make the phone calls and form your own opinion of value.

    Do that and you will find your Goldilocks.

    – Duke

     

     

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