Trust and Commercial Real Estate

The single biggest roadblock to explosive growth of CRE as an industry is a general lack of trust. It’s amazing to me how often lack of trust is the driving factor in the way corporate real estate groups are setup or the way that CRE projects are implemented.

There are two distinct sides to the lack of trust issue:

  1. Internally to Organizations. Business leaders don’t trust the delivery of service or the costs required to implement sites to their specifications. Lack of understanding of what CRE really is.
  2. Externally in the Market. Market participants have very little ability to judge the quality and financials of their decisions relative to the full set of options. Invisibility of data.

Every CRE team I’ve worked with inside of organizations has been structured differently with a different mission, varying services they offer and who they report to. This includes whether the facilities management function is provided within CRE or independently. It also includes whether real estate is viewed as a cost of doing business (reporting to finance or treasury with a primary focus on reducing costs) or a business enabler (reporting to operations with more free reign on how to run projects).

When you move from a finance team at one organization to a finance team at another there are always differences but generally, the function of finance remains consistent from one company to another. Real Estate is the complete opposite. In part, this is due to the broad possible scope of real estate covering finance, architecture, project management, customer relationship management, design management, facilities management, lease administration, tax & accounting and various engineering competencies. What kind of person do you hire into this crazy function?

But real estate teams are also directly influenced by the way that services are paid for. The primary role of real estate is usually the execution and management of leases to give the business sites to operate within. The cost of these functions is often paid by external parties to the corporate real estate group. Leases generate commissions that are paid by the landlord. The single biggest asset of most real estate teams is the leases that they have to give to 3rd parties for implementation. Large firms leverage these commissions to also get lease administration, financial modeling, some consulting, full-time transaction managers, project managers and other related services paid for completely outside the business’s P&L. When a large portion of your tasks and/or organization are not only 3rd party but paid for by someone other than yourself, it creates some interesting dynamics.

As you can imagine, in the past this arrangement led to some unsavory business relationships. Many jurisdictions (state and countries mostly) have enacted varying laws to manage the way that these 3rd parties can deliver services and receive or use commissions.

This all also has the side effect of having most real estate experts migrating to the service provider side of the world instead of working for organizations directly. Most of the work is done by service providers and most of the money flows through the service providers. It makes it difficult for organizations to recruit the best talent.

Just imagine if SAP offered their system free of charge including all of the financial experts and analysts necessary to manage your financial operations at no (direct) cost to you because they receive a piece of every check that is cut or payment made? It would create an absurdly difficult business model for many companies to turn down. It would also create an environment where there is tremendous potential for things to happen not in the best interest of the business needing the service.

This is real estate. It’s why this industry is different than others. It’s why there is so much opportunity for improvement.

The Blockchain and CRE.

Over the course of 2017, I’ve been doing a lot of research and learning around the Blockchain, Bitcoin, Ethereum and offshoot projects. There are some fascinating things going on in this world if you haven’t been paying attention to it. This post assumes that you have a basic understanding of what the blockchain is. If you don’t, go research and come back (I recommend starting with the Wikipedia page for Blockchain).

This is not a post advocating people to go out and buy Bitcoin or Ether. Personally, I do own some of both but only enough to cause me to pay attention to what each project is doing. The decision for individuals or groups to invest in the actual tokens is something that is best left to each individual’s taste for risk in their investments.

For those that care to think out to the future, Duke Long has been running a great series over the past few years about the potential impact of the blockchain on CRE. Last week I left a long comment on one of his posts and Sunday he replied back with a full blog addressing my thought. It was more than I expected but very worthwhile to read.

I often disagree with Duke on his outlook for the industry’s macro trends. Our backgrounds are different, the markets we’ve worked in are different, the trends we think will affect CRE are often different. Yet I still read all of his posts to understand that perspective because he’s right a lot.

One thing I don’t disagree with him on is the potential impact that the blockchain will have on CRE. I think there are some major hurdles to its adoption that are going to be difficult to get over but someone will solve those hurdles. Why?

Why you ask? The blockchain solves the single biggest issue that causes CRE’s inefficiencies: lack of trust.

The entire purpose of the blockchain model is to allow data to be shared, recorded and altered in a way that allows complete strangers to have confidence that their transaction will be correctly recorded and stored. Data integrity around contracts, records, data points, etc is assured by the distributed maintenance of the blockchain nodes. There’s a clear and researchable record of who did what, when. This is true while also still allowing degrees of anonymity.

So much of our industry is kept behind curtains because people don’t trust others. Landlords don’t trust other landlords. Tenants don’t trust their landlords. Brokers don’t trust brokers. Brokers don’t trust CoStar. Consultants don’t trust their data. Market rates are unknowable other than as opinion. The blockchain has the ability to level the playing field by giving every participant an equal starting point.

If you had told me 6 years ago, I wouldn’t have believed you.

Today marks the 6th year of posts here at BoxThoughts.

  • 1,147 posts as of the time I’m drafting this.
  • 191 per year.
  • 3.67 per week.
  • Many that I go back and reference myself.

While, on the surface, this is a blog about the real estate, I’ve never made it a secret that it’s really for me. It’s where I practice my writing, put thoughts into the world before they are fully ready, aim to improve myself and ponder thoughts about what’s going on.

Along the way, I’ve met a few that have actually felt the need to express their enjoyment at reading what I put out there. I can’t express my surprise that I’ve impacted even a few people.

Four years in a row now I’ve been at number 5 on Duke Long’s annual list of Top 50 Commercial Real Estate Blogs You Must Read (2014, 2015, 2016, 2017). I don’t get much love in other places but I don’t take that as a sign of anything but being outside the mainstream of CRE thinking. It’s part of why I love Duke’s blog so much, even when I disagree completely with some of his opinions. (BTW, if you love CRE, you should be reading Duke every Wednesday and Sunday.)

Six years ago, I was still new to the ways of the world. I’d never start this blog today because I know how much I don’t actually know. Displaying my ignorance would be terrifying. But because I’ve already started, there’s no reason to stop now.

 

Continue riding the horse that brought you or move to something new?

Over my career, I’ve had the privilege of creating some really cool tools. I’ve built a headcount forecasting model that was accurate to within 2% over 4 years. I’ve built financial models that have made complicated numbers seem simple. I’ve designed business intelligence applications for more uses than I can remember. I’ve designed software, created websites, implemented tools, and learned more than a few client systems.

But there is one that always comes back to me as the one I loved most. It was one that I had spent a year designing, pitching internally and then finally getting off the ground and released to clients. I brought it out from nothing and made it something. Unfortunately, a year later I no longer had an influencer role with it.

Selfishly, I can look at the trajectory and feel like I could have done much better than those that inherited it after me. It wouldn’t have been hard. Then again, hindsight is always 20/20.

Fundamentally, technology is hard. Getting an idea into implementation is hard. Getting implementation complete is even harder. Getting a client to use it is even harder. Getting traction to need to scale and then scaling is hardest of all. Building online systems is simply one of the toughest things in business.

I say this because it’s worth managers understanding what makes things successful. Some concept of “the market” is great but doesn’t do anything on its own. An “outside expert” may not grasp the vision of what is needed. Changing teams to encourage new ideas sometimes only introduces bad ideas. Sometimes the best horse to ride is the one that got you there.

Push your boundaries and discover how to continue your self-improvement efforts.

If you aren’t seeking to actively engage in self-improvement, stop reading now. In fact, I have no problem if you hit the unsubscribe button. Self-improvement and self-reflection are cornerstones of success. If you aren’t willing to walk down those roads then you probably aren’t getting much from this blog anyway.

Over the past few months, I’ve been trying to find new avenues for my self-improvement. Recently I’ve met a number of people who push my mental concept of what I can do and achieve. It’s created a minor crisis of self-confidence at times because of all the missed opportunities and false starts I’ve suffered over the years that I didn’t even realize. But then I remember that today is still the best day to start something new. It’s never too late to step forward and volunteer for something new.

I’m actively moving forward in new ways and cannot be happier. Do yourself a favor and find ways to do the same.

Communication. It’s not hard. It’s everything.

Back to one of my favorite topics today, communication. It’s the center of everything. It’s actually even more important than that in real estate. There’s nothing worse than implementing some amazing new office only to learn the business had decided to double their headcount and they won’t fit. Communication.

Sadly, one of the main reasons that communication breaks down is “too much work.” When people get busy they don’t want to “waste time in meetings” or “spend all day answering emails” or “stop and chat on the phone.” Said another way: they get too busy to communicate.

I’ll be the first to argue that many meetings are a waste of time. Some days it feels like many meetings are primarily a way for some people to appear busy without achieving anything at all. Other meetings feel like they are ripe with potential to achieve great outcomes only to be foiled by poor planning. Communication without thought is often worse than no communication at all. At least with no communication people may feel compelled to use their best judgment.

Communicating is the core component to every job. You need to be able to relay the thoughts in your head. You need to be able to convey the needs of your team. You need to be able to receive the current state of your partners. You need to be open to understanding your vendors. You need to be able to participate in group decisions.

On the surface, communication isn’t hard. But somehow most people fail at successful communication much of the time. Even successful communicators sometimes forget what to do.

Your macro-level thinking changes when your role changes.

Over the past few months, I’ve watched as the posts here have become more philosophical and less tactical. I spend little time talking about technology, UI, UX and day-to-day activities and more time talking about the role of management, decision making, and planning. My role is not anything like what I’ve done over the past year and it is leading me to think thoughts I haven’t focused on previously.

This shift in perspective is purely due to this change in role. It’s allowed me to discard some biases I previously held (or was forced to hold by the nature of my previous position) and adopt new ones. Biases are not, in themselves, good or bad things. They are simple truths we hold on faith with little question. For example, I used to believe that data and analytics could make any real estate organization stronger and better. I now understand that to not even regularly be the case.

If I was to go back to the role I had been in 9 months ago, I’d immediately adopt an entire solution modeled around supporting real estate organizations that have no data and limited formal processes. These are the real opportunities. They also happen to be really hard to work with.

It’s worth thinking about how your way of thinking changes based on your place in the world. Big events change you simply by those events occurring.