Some stories are worth repeating regularly because they show the common bonds of teams.

Some people don’t like to hear the same stories over and over. You know the type of story I’m referencing: the ones that always come out after 4 beers to groans, laughs, and quiet smirks. The stories could be a decade old but they still come out as if they are fresh. These stories are worth bringing up regularly for a couple of reasons.

These stories reinforce the common bonds between the team. They show that there have been shared events that have built the trust that is there. No matter whether things currently are good or bad, they give people something to fall back on. They form part of a shared experience that we can appreciate.

Another reason for these is that they give an opportunity for entry into the shared community. Being invited to listen in means that some part of the shared trust is being shared with you. Stories like these are not shared with just anyone. There is more than just words to the story that you are being invited to. Hearing stories of years before means that you should expect to start being involved in the next round of earned stories.

Repeating them over and over is worthwhile because the experiences relayed within them will change with time and context. There are morals about the participants in these stories. There are little ways for achieving victory. There is an opportunity for renewed self-reflection on how to avoid the situation in the future or how to handle it better if it does come back around.

Don’t underestimate the power of these stories.

Advertisements

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.

How do you create trust in corporate real estate?

Trust is the main ingredient in the process of “getting things done.” If you don’t have trust between people or groups, the schedule gets extended due to over-validation, every decision takes longer to make, political maneuvering accelerates behind the scenes, budgets/funds dry up, and support goes away. Without trust, there is no success.

Real estate is a difficult industry to succeed in. It’s hard to prove your track record. Did you really reduce the cost of that lease through negotiation – sure, you reduced from the first offer but could anyone have done the same? Does this workplace model actually increase productivity? Why is this building really better than the one next door?

It’s often three to five years before it’s clear whether a particular project or deal was good or bad. Often, good or bad is based on what happened to uncontrollable market behavior and not actual business impact.

So if you can’t prove your recent track record with any degree of control, how do you create trust with the business and other colleagues?

Focus on change and risk management. 

Real estate is about managing the future of the business. Sites are going to be operational for three, ten or fifty years. They are going to support an ever-evolving business, an ever-changing management team, an ever-shifting business strategy. The projects completed years ago are going to be revisited and questioned. The solutions developed will occasionally be the wrong ones.

The best thing that real estate can do is prove that they are partners in every decision and strategy. That doesn’t mean the business gets everything they want. It means that all impacted parts of the business are part of the process and included as stakeholders.

Real estate’s biggest impact on the business is that they provide the location where everything happens. They provide the retail fronts, manufacturing sites, distribution, back office, front office, headquarters and everything in between while also ensuring the sites are maintained and operational. If you step back, this is the single biggest risk to an organization.

If real estate completely screws up, manufacturing fails because there isn’t enough labor, distribution costs skyrocket because transportation is in the wrong place, the labor pool is inadequate to the skills requires, there aren’t enough seats to hold all the employees needing space, the workplace is designed completely opposite of what the culture needs for support, etc, etc, etc. This is a scary thought.

From a business perspective, you are putting much of your ability to be successful in the hands of people that may or may not be incentivized to help make you successful. They may just be trying to keep costs as low as possible regardless of impact on the business. They may be trying to make a name for themselves by completing a huge, magazine cover project when all that is needed is a basic office.

Real estate is the ultimate partnership group – even more than HR, finance and IT. Trust comes through that partnership that needs to happen.

Focus on the partnership, build trust, do right by the business.

The best way to get a deal done or grow a business is the same – trust people.

Trust often seems hard to come by in the business world.  It requires you to put part of your success and future into others outside of your control.  Trust is notoriously fickle in the slow to build, easy to break ways.

But trust is the foundation of things getting done.  If you don’t trust (at least in some ways) then you will constantly be treading over the same ground repeatedly.  Nothing fast will happen and no one will volunteer to help out because they know their efforts will be in vane from the beginning.

This is not to say that you should trust indiscriminately but that you should know when, where and who to trust.  Some people you trust to run the financials, some to deal with the client directly and others to keep everything else running.  Trust outside of these areas may not exist yet.

If you don’t trust people to do their jobs you will quickly find your belief to be self-fulfilling.  Those who don’t trust are usually rewarded by being lonely and stuck doing everything themselves.  Hard to grow that way.

Be wrong! Why it is the best thing you can do for yourself and your clients.

I say it a lot and I will keep saying it.  CRE is a hard field because it touches so many areas of both business and the economy.  It is absolutely impossible to be right all the time on all topics.  Being right all the time is often interpreted as being dishonest about when you make mistakes or are wrong.

Trust is built through human interactions and two people learning each other to a degree where they can predict future behaviors and like what they predict.  Trust is the cornerstone of this industry.  All of our relationships, clients and solutions are predicated on a high degree of trust.

By being wrong, and owning being wrong, you are able to emphasize where you are an expert, where you need help and how you will behave when things start going wrong with a future solution.  Being wrong occasionally will actually strengthen your relationships and give people greater confidence in everything else you do.

….of course with that said, being wrong too often or on the wrong topics isn’t a good thing.  Don’t screw up if you can help it but it is inevitable.

I write this while sitting in sand….

Vacations are an important part of the working process.  If you never get away from your job then you never realize that things will continue on without you. 

The secret to happiness is knowing and embracing how the world will move forward without you.  The best you can hope for is to do the best you can, hire people smarter than you and help everyone you work with to be more successful.  Anything more than that is just selfish.