Why tapping into creativity in 2020 is critical to success
All of us, regardless of our role in commercial real estate or our successes, have to deal with disappointment at some point in our lives. I’m not talking about the little affronts we all encounter, like a bad meal in a great restaurant, or missing the last train, or working with that one person who never puts their dirty dishes in the dishwasher.
I’m talking about the disappointments that knock us off our axis. Being passed over for a deserved promotion. Losing out on a big real estate deal. Missing revenue goals. Those kinds of things can get into our bones and leave us cautious. Where once we were willing to take risks, we are tentative. Where once we saw infinite possibilities, we become cynical. If we aren’t mindful of the impact that those disappointments have had on our point of view, our point of view might be narrowed or changed forever.
Most sectors of the commercial real estate industry are confronting disappointment to a previously unseen degree. Sales have plummeted. Businesses are struggling to make lease payments. Some owners and tenants alike are having to deal with losses due to vandalism and theft. Hotels, restaurants, and retail spaces are racking up record-breaking losses. The pandemic has unquestionably been devastating to commercial real estate and to the lives of everyone in the industry. Six months into this crisis, each day presents another challenge in how to maneuver through the uncertainty. Without a doubt, the world of commercial real estate is being called to reinvent itself. Ingenuity, integrity and insight will be the calling cards of the coming reinvention.
The sudden halt to normal business operations was a call to ingenuity – and for many people, that is not a natural transition. It requires, before anything else, a willingness to address the entire state of affairs. It takes courage to look at all of it: the finances, the equipment, the personnel, the client relationships, the pipelines, the infrastructure, and the hits. You’ve got to know what you really have or you could find out you have nothing. And when you’ve got a global pandemic bearing down on you, you need to get things figured out fast.
Ingenuity has taken many forms. Empowering employees to work from home is one, and now that many companies have discovered that it really can work, it’s estimated that 25 – 30% of the workforce will work from home at least part-time by the end of 2021. In the long run, this could mean savings to employers of up to $11,000 per year, per work-at-home employee.1 Kate Lister, President of Global Workplace Analytics, estimates that “work-at-home will save U.S. employers over $30 billion a day in what would have otherwise been lost productivity during office closures due to COVID-19.” Unfortunately for commercial real estate owners, managers, and lenders those “work at home” savings translate into lost rental revenue and correspondingly reduced property valuations. This will require companies in the real estate space to create value in non-traditional ways.
Taking stock and getting back to basics is a shrewd way for commercial real estate leaders to face the pandemic. In a recent interview with Bloomberg2, Airbnb CEO Brian Chesky spoke of the moment he realized the company was facing a billion dollars in immediate cancelations. “It just felt like everything in the company broke,” he said. “As an industry, we had to stare into the abyss, and we didn’t know if and when it would recover.” Many people would have looked into the abyss and run away screaming. On its face, a billion dollars in cancelations looks insurmountable. But instead, Chesky got humble. A clear minded evaluation lead to a reduction of almost 25% of their workforce, and a pause on investments and efforts in some newer divisions. Being true to the company’s defining principles of communication, diversity, and transparency, Airbnb has returned to the simple couch-surfing vision they began with twelve years ago. In a letter to employees, he said, “When we started Airbnb, it was about belonging and connection. This crisis has sharpened our focus to get back to our roots, back to the basics.”
By addressing the situation head on, they restored their integrity. Chesky and Airbnb now have a clear place to stand in creating what’s next, and in late August they filed the paperwork in anticipation of a late 2020 IPO. This is what’s possible when you really, truly deal with disappointment: A whole new future can arise.
Restoring your vision is one approach. Others believe that calling on insight and taking on reinvention is where it’s at. The American mall has been feeling the crunch for years now. With retailers now doing up to 35% of their business online and over 9,000 stores already shuttered in 2020, and with stalwarts like Brooks Brothers, Pier One, and JC Penney filing for bankruptcy, a lot of retail space is sitting empty. 3 The trend toward opening restaurants and entertainment centers in malls was a great idea… until we were all told we would be better off staying at home.
Some developers are approaching those empty spaces as opportunities. In Lynnwood, WA, the Alderwood Mall is being converted into a 300-unit apartment complex, scheduled to open in 2022. 4 (The Providence Arcade in Providence, RI did it first, reinventing the 192-year-old Arcade into micro-apartments.) The Alderwood plan maintains retail in one section, giving the new development its own community center. Smaller domiciles, walkable retail, and a brand new extension of Seattle’s light rail make the project very attractive, especially in light of Central Seattle’s long-standing housing shortage. It’s a huge undertaking of both time and money (the developers won’t disclose the budget). Another property owner taking advantage of an opportunity is Simon Property Group, the largest mall owner in the United States. Simon is in talks with Amazon to take over space vacated by departing department stores such as JC Penny and Sears. Amazon is exploring the possibility of using the vacated space as distribution hubs. These are risks, as reinventions are.
Here’s the fact of the matter: Even when you thought you knew what was coming next, the future was uncertain. The future has always been uncertain. Certainty has always been an illusion. When you have the guts to come face-to-face with what you really have, right now, you have the freedom to create what comes next. As the world continues to transform during this time in our shared history, the thought leaders who deal with reality are the ones we can expect to lead us into a new future. Rather than being at the mercy of the pandemic, they will work with it, finding and creating new opportunities. Just think of all those people who used to make t-shirts… and now make masks! It will require consciousness, teamwork, humility, and courage. It will require overcoming disappointments. The good news is that all those third-rate dinners, missed trains, and dirty dishes have already trained you to deal with disappointment.
There is no status quo anymore, in commercial real estate or many other facets of business and society. You can find that to be either a disappointment or an opportunity.
The people who see an opportunity will have the advantage.
Realogic appreciates that companies with the creativity and vision to see the opportunity in today’s changing commercial real estate landscape are tomorrow’s commercial real estate leaders. We are focused on customizing our services to assist clients as they pivot and rethink their business plans. Our breadth of consulting service includes financial modeling, valuation and underwriting, due diligence, asset management, budgeting and reforecasting, lease abstraction and administration and CRE training. As you rethink your company’s future, consider Realogic to be an extension of your team.
Author: Sara Conway, Realogic Office Administrator