Now that we’ve discussed the strategy and capital behind deal-making, and the due diligence required to close deals, let’s talk about how to manage your assets. Ultimately, this is the step where, quite frankly, the value comes into reality. Both Michael and Spencer have been on the development side of the real estate business and this episode features their advice when it comes to assets in real estate. What’s interesting is that real estate is a relationship business, it’s a people business, and this gets to the deepest parts of achieving anything. You bring the right team and the right skill sets together and magic can happen. When it comes to asset management, there was a decision at a higher level to select certain personnel, which created the right team.
This episode talks about the skills needed to manage those assets as well as the skills needed to lead a proper team. Watch episode 5, “Executing The Plan, Managing The Asset” below.
Executing The Plan | Managing The Asset
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Welcome to the Adventures In CRE Audio Series. Join Michael Belasco and Spencer Burton as they pull back the curtain on everything commercial real estate, and introduce you to some of the top minds in the industry. If you want to take your skills to the next level and be part of a growing community of CRE professionals across the world, this is for you.
Sam Carlson (00:24):
All right. Welcome back to the Adventures In CRE audio series. So today we’re going to continue on with the idea of deal-making and doing, of course this has been so far… And by the way, if you’re listening to this, the way this actually happened was we sat in studio. If you’re watching this on YouTube, you can see that for yourselves, but we sat in the studio for two days, we got together and over several hours, we went through and tried to make the execution of this content as linear as possible. So from episode one of season three down to what will be the next episode, which will probably be our last episode for the season, go through the entire process of getting a deal and getting it done.
Sam Carlson (01:07):
And so today, just to kind of recap a little bit before we jump into the topic, we’ve got strategy, we’ve got sourcing, I might forget some of these, we’ve got capital, both equity and debt. We’ve got due diligence, which we talked about last time. And then now we’re talking about bringing all of these streams to light with management. Now, the management of the project, I don’t want to be that generic or vague, so I’m going to ask you Spencer to kind of lay it out a little bit for us, what that actually means. But, the goal of today is to highlight the process of actually getting a deal done and delivered and realize the actual potential of the strategy.
Sam Carlson (01:47):
So with that intro, hopefully, I didn’t step over to the next episode. I’ll turn it over to you, Spencer.
Spencer Burton (01:55):
Yeah. I don’t mean to diminish the depth and importance of this section because really, when we’re talking about, I think we’re calling this management, but really, this is making the dream a reality. Taking the plan that was developed from the making team, whether that’s an acquisition team or a development team and turning that into a reality. In real estate, that’s the asset management team, that’s the treasury team, that’s the portfolio management team and ultimately the disposition team, which in our final episode we’ll talk about kind of bringing a deal to a conclusion.
Spencer Burton (02:39):
But ultimately this step is where quite frankly, the value comes to reality. I remember when I was in grad school, one of my professors said that without the asset management team, and you could in all these other the portfolio management and treasury, without them, nothing would happen. And so acquisition and development get all of the love, but the real work is done by this group. So that’s what we’re going to talk about.
Sam Carlson (03:18):
Execution and outcome. Without that, there’s nothing to be had. So where should we start?
Michael Belasco (03:22):
Are we going to add development management? I know…
Spencer Burton (03:25):
Most definitely. Yeah. We have some stories about that. Both Michael and I have been on the development side of the business as well. And so when we’re talking about this management, it really is, there’s a plan that’s put in place, someone and a team of people have to execute that plan in development context. That’s the development management team.
Sam Carlson (03:43):
All right. Where should we start? What’s the best place? At the end of the day you’re right, there needs to be a group, a body of people that provided outcome. That’s not done through hopes and dreams, which we’ve kind of done. It’s almost like everything at this point has been. So in the paper world. In the clouds to use that metaphor again, now we’ve got to get down on the dirt, so we have a result. So where do we start?
Spencer Burton (04:07):
Maybe I’ll tell a story?
Michael Belasco (04:09):
Yeah. We’ll give-
Spencer Burton (04:11):
I can’t give too many details because I don’t want to reveal the individuals because this is a lesson learned sort of story. But it was a real estate development project, it got kicked off, had high hopes and dreams, a team has assembled a plan was in place and the wrong team had been selected to-
Sam Carlson (04:41):
Spencer Burton (04:41):
Execute. And so for the better part of a year that team floundered and the project suffered. And there’s a whole variety of reasons why, which I won’t get into, because it could… Those who know my 20-year career may be able to point back to exactly what real estate project exactly that was, but it was just the wrong team for that particular project. Those individuals could have done great in other things, but they just were the wrong team for that project. And so ultimately, the decision had to be made to remove that team and replace it with a new team or make some dramatic changes to the team and the leadership of the team in order for the team to work.
Spencer Burton (05:33):
As soon as the new team was formed, the project sped forward and ultimately it was a success actually, interestingly enough. And so that’s my first big takeaway as it relates to this piece, like executing, you really need to have the right team.
Sam Carlson (05:51):
Yeah. Because in this example, what you’re talking about is the strategy and everything that came before that execution portion was sound.
Spencer Burton (06:00):
Sam Carlson (06:01):
Was good. And the strategy was good and you hate to see something with that type of potential fail because the wrong people either don’t see the vision, don’t have the skillsets, or don’t have the dynamics to follow through with something.
Sam Carlson (06:18):
What’s interesting about that is real estate is a relationship business, it’s a people business, and this gets to the deepest parts of achieving anything. The right team, the right skill sets, you bring it together and magic can happen. Without it, it can lead to some pretty terrible things.
Michael Belasco (06:42):
Can I ask Spencer. Can you give from this story and it might be too much, could you give some symptoms?
Sam Carlson (06:52):
Yeah, what was it that-
Michael Belasco (06:54):
What were some of the symptoms that caught your eye that made you realize that this was problematic?
Spencer Burton (07:00):
The first symptom was a lack of focus. You want a team that is excited and committed to the project. Every individual on the team need to be working towards the same thing… Buy-in maybe is the right term that I’m looking for. So lack of focus was a major issue. The second was, this was somewhat… The project, the task wasn’t exactly aligned with the core competencies of the team and this team had done well in other areas and so the assumption was, well, you know what? They’ve never proven themselves in this particular sort of project, but they’ve done well on other projects and so I think this is the right… Let’s try to squeeze a square peg into a round hole because we liked the way that square peg worked on another board. And so, it came down to focus and in core competency really in this case.
Michael Belasco (08:08):
So this is like, take it to the next level. So you’re talking about managing at the project level, but there was a decision at the higher level to select the personnel. So it was a personnel selection.
Spencer Burton (08:19):
It was a mistake. No, most definitely. I think the decision-makers in that group, which I was a member of we look back and we recognize that that was the wrong decision. You can’t beat yourself up on… In the previous episode, we talked about making major decisions by committee so that no one individual is responsible. Because look, mistakes are made. And what was most important by the way, is that we recognized at a certain point that it wasn’t working and we fixed the issue.
Spencer Burton (08:57):
I lived a good portion of my career on the limited partner side. So we would provide equity capital and we would essentially buy into the core competency and idea and strategy of a GP oftentimes on the development side. But in every one of those partnership agreements, there’s a clause that allows the LP, which has the great majority of the skin in the game to remove the manager and replace it with a new manager.
Spencer Burton (09:31):
It’s interesting because we would always get pushed back on that point and the manager, the GP would always want to water that clause down in such a way that would protect them. And I get that. I mean, I totally get it. In fact, living on the GP side it’s what I would ask, but you need and you want the ability to replace a manager that’s not working. And quite frankly, if you’re a manager and it’s not working out, you ought to step aside and let someone else who has the focus, who has the core competency to step in and make it work.
Sam Carlson (10:09):
I’ve seen certain situations where, you might have a team that they do, they’re more forthright and they come out and they say, you know what, we’re lacking the resources or the manpower, or the skill sets to actually execute on this. That could happen. But I don’t know that that’s most of the time, the situation. So I’m wondering, how do you choose, how do you assemble the the Avengers of execution? How do you get this, this thing done? Like, what are you looking for and what are some of the things… Also, I do think that sometimes you set people up to fail one, by assembling the wrong people, but two, not providing enough direction and resources. So I want to talk about that as well. What some common resources that maybe you want to skimp by on that really are a poor idea. You want to speak to that, Michael?
Michael Belasco (11:17):
In terms of sources that you want to skimp by, I do want to… Maybe we could go back to talking about being properly resourced. I think it’s a critical thing to managing whether it’s development, whether it’s a platform, whether it’s just the acquisition and then asset management of it, you need to have a team that is sufficiently staffed, and that knows what they’re doing. And if they don’t, if you have a team that there’s a leader, for example on that, they need to be properly resourced with the right people. No manager will be an expert in everything, and that’s a critical thing to understand. There needs to be somebody at the helm who understands where the weaknesses are and can properly communicate that, and then be able to identify that accurately and quickly, and then either staff up or outsource or bring in the technology that they need.
Michael Belasco (12:08):
And that’s very critical. Especially when you’re early on in a company and you’re looking to scale up really quickly.
Sam Carlson (12:16):
I was just going to say, the plight of the entrepreneur… I don’t live in the real estate world as much as I do in the entrepreneur or small business world. And the plight of the entrepreneur is you have this idea, you vet it and then at some point you got to do it right. And that other stuff is fun. That’s the fancy stuff that dances around in your head, you’re like, oh, what if? But they’re gutting it out is assembling the people, having the plan, understanding the plan, coming back to it enough to like reassess and redirect yourself and I guess, adapt to new needs. And the ability to execute day in and day out really comes down to a team dynamic and to focus.
Sam Carlson (13:04):
I remember I was working with a fellow once, we had a consulting firm and we hired this new person to come work for us. It was mostly a commission kind of thing. And in the context of this job, I was thinking, well, I mean, myself personally, I’ve always pretty much made what I earned. I earned something, that’s how I make my money. I don’t really get salaries and things along those lines. And so when this other person came on, I was thinking, “Well, that’s what they should get.” I mean, they don’t need a salary, just bring them on and they can do whatever.
Sam Carlson (13:45):
And, the gentleman I was working with was saying, “You know Sam, this is a team member. They’re not in the position where we are. We need to provide them the ability and the resources so they can focus on the thing they’re doing.” And I think that when we talk about resources, whether it’s money, whether it’s team, whether it’s whatever, what we’re really doing is we’re allowing a person to divert distractions and achieve focus. Because focus when properly directed, you can do an amazing thing. Because I think we could get very tactical and very like, we need this, or we need that, these specific resources, but really what are we doing? What are we actually achieving when we’re trying to execute something? We’re trying to get rid of distractions and focus on a thing to get a result. That was quite the pontification while.
Michael Belasco (14:53):
You’re not trying to get rid of distractions at the macro level. You’re trying to get rid of the distractions that are not your strengths, you know what I mean?
Sam Carlson (15:03):
Michael Belasco (15:03):
We’re getting off real estate. It’s sort of globe… I think it’s-
Sam Carlson (15:06):
Are we though?
Michael Belasco (15:06):
I think it’s a good way to go. I mean, it’s a macro conversation. So you’re not always the top guy. You have to manage up. There are people above you and there are people below you. So if you’re in a managing position… Some key takeaways in my life are knowing when to say no. Knowing when to say, “I cannot do all this.” Somebody from your senior position says, “I need you to do this, that, this, that, and the other thing,” my personality is, I want to take it all on. I’m going to do it and I’m going to do whatever it takes. I’m going to be up all night, whatever it takes.
Michael Belasco (15:44):
And so I learned some lessons which is, that’s a recipe for disaster. First of all, you’re not communicating properly with senior person to say, “I can’t manage this. It’s not a recipe for success.” You’re putting the company at risk because you’re not properly allocating resources. You’re not communicating effectively to say, “Look, this is a risk. We need to make sure that we put the right people in place. I need to understand what my strengths are and what are the weaknesses,” and build the team around you.
Michael Belasco (16:18):
That’s a critical lesson learned in my life, which is just make sure that you are able to always communicate, have no fear in saying you can’t do that because of capacity or experience or whatever that is. So in managing, it’s knowing when to say no, or that’s not going to work or the bandwidth is not there. So that’s a critical piece. And then if it’s perpetually like that, you’re putting somebody in place that is better than you. You want to hire people to work for you that are smarter than you.
Sam Carlson (16:50):
Michael Belasco (16:51):
That’s the goal. You don’t want to be the smartest guy in the room, then you’re not going to achieve anything better. So it’s getting over that, finding the right people at the right place and understanding your weaknesses and building around that as a manager.
Spencer Burton (17:04):
Sam Carlson (17:09):
Did you have something you wanted to add to that?
Spencer Burton (17:10):
I have nothing more to add to that. That’s spot on.
Sam Carlson (17:14):
I think it’s powerful what you’re saying. I mean, even myself personally, I know what things I should not be doing. I’m so much happier doing the things that I know that are A, either my strength or B, something I know I can accomplish. If I’m able to go deep on something… distraction and focus. I tell you what, distraction is your enemy right there.
Sam Carlson (17:43):
Now, one of the things about focus, compounded results, getting something done, achieving the strategy, it doesn’t happen overnight and it’s not sniping either. You’re not coming up and it’s one shot and it’s done. It’s consistent effort over time. And I might add to that, it’s the right consistent effort over time.
Sam Carlson (18:14):
One of the things… I mean, that whole phrase of work harder, work smarter, that whole thing, there’s no glory to be had in being the hardest working person. There’s nothing to be said for being the guy who shows up or gal, and works the longest. Kudos to you. It is all about whether or not you’re doing the right things. And you can do… The whole Pareto’s principle, the 80/20 thing, 20% of your efforts result in 80% of the outcomes. If you just sat down, identified the things that are really producing the outcomes and then try and do more of that, your outcomes are going to multiply.
Sam Carlson (18:55):
So, I think execution and everything we’ve been talking about the team, whether or not they’re proficient at what they’re doing, it really comes down to what are they good at, how many things are they doing and how are they doing it?
Spencer Burton (19:11):
It’s an interesting point. I have a couple of thoughts on that, the first around focus. When I was 21, I was looking at, where do I want to go with my career? I knew I liked real estate so I pursued brokerage. I think we’re all aware that I spent the first few years of my career in land brokerage. And I say land brokerage by the way, I didn’t call myself a land broker at the time. It just so happened that the majority of the business I did was it was in land. Do you know why I went to land brokerage? It’s because I was looking at a whole variety of brokerage options and someone told me, “You know, the problem with being a broker is that you’ve got to work nights and you’ve got to work weekends, you’re working 80 hours a week.” And I’m like, “I’m not doing that. I don’t want to do that.”
Spencer Burton (20:07):
And so I committed myself that I’m going to work nine-to-five, Monday through Friday and if I miss out on business in nights and weekends, oh well. And then I went, okay, well, what area of real estate can I have more of a nine-to-five? And I’m not going to pretend that I’m never working nights and weekends, I certainly do mainly because I actually really love what I’m doing. But generally speaking, I’m able to focus and the majority of my time is spent nine-to-five, Monday through Friday.
Spencer Burton (20:42):
That’s a decision that I made and I for the most part upheld through my entire career. Now again, I do nights and weekends, but I’m doing things that I love to do. Building models and writing blog posts and doing podcasts-
Sam Carlson (21:01):
I’ve never seen him work a day in his life, this guy. I’m not even kidding. I’m not kidding.
Spencer Burton (21:05):
Well, I enjoy it, yeah. I really enjoy what I do. But anyway, my point around focus now we’re way off of management, but I think it’s somewhat relevant is, you choose what you’re focused on and how you focus it. You choose whether you’re working nights and weekends, you choose how much time you spend and where you focus your attention and no one else makes that decision for you.
Sam Carlson (21:32):
It’s picking up the baton and then hopefully running in the direction of really being effective at managing a project whatever it is. I heard this phrase once, and I don’t know who said it, but it was, what gets measured gets managed. And the whole idea of this concept is the worst position to be in is to be reactive to a situation. You have to get a job done. You have to execute on the plan and there’s nothing worse than working for whatever length of time and finding out after the fact that you miss something and that now you’re behind schedule and that now there’s all these problems that are consequences as a result.
Sam Carlson (22:24):
So the question is, well, how do you keep that from happening? I know in my early career, as an entrepreneur, I was not great at doing this. I was great at working hard. You could never accuse me of being lazy, but you can accuse me of working hard and not smart. I learned from a mentor that what gets measured gets managed. And what’s great about that piece of tactical advice is, if you manage it consistently, you’re in front of the problem before it happens, you can see it happen as long as you know what to manage, all right.
Sam Carlson (23:04):
There’s a book called, I think it’s called Upstream. If you Google it, I’m sure there’s a book called Upstream. I read books. I can never attribute things back to who they come from, but there’s a book called upstream I’m pretty sure, and the whole idea is whenever you see the symptom of a problem, okay, whenever a problem manifests itself, that that is just a symptom. It wasn’t caused by the symptom. It was caused by something that happened upstream. So meaning something that happened beforehand. And if you’re measuring that thing, then you’re not going to have the problems downstream.
Sam Carlson (23:44):
I think if you’re sitting there planning how am I going to execute Spencer’s strategy to a T in the way that the team that we all see it, I’m going to sit there I’m going to spend a lot of time in thinking, what do I need to measure so it gets done? I think Abraham Lincoln said it, “If you give me five hours to cut down a tree, I’ll spend four of them sharpening the axe.” And so what am I going to measure so I can execute and so it can be in front of any problems. I can be proactive in solving problems. I mean, you’re ready to go. Yeah, go ahead.
Michael Belasco (24:27):
No I love the concept. It’s spot on. To me, when I think about all the things that were missed and were successes, it came down to risk. I’m just thinking about this now. What you say, what gets measured gets managed. What gets measured gets managed. Anything that was a miss or that was a hit, it was managing some type of risk and I’ll give you an example in development management.
Michael Belasco (24:56):
You have these big generational development projects. You are budgeting these projects in one environment and you are setting that budget in capital partners and everybody, the whole third-parties everybody, people that are working with you, everybody’s managing to that budget. This project could take 5, 10 years. What gets measured gets managed. Well in 5 to 10 years of this whole process playing out, construction costs, like you could go through a designer entitlement costs, maybe it’s not five years, maybe it’s three years. If you’re going through entitlements for a long time. What gets measured. Somebody should be measuring construction costs.
Michael Belasco (25:38):
I’m just giving one tangible example that relates to real estate. You got a budget in one environment, you get through all these processes and you start to go bid this project out. All of a sudden you had this budget, you’re three years later and the world has changed. So if you didn’t measure that or manage that throughout the process, you didn’t have check-ins during that time, you’re going to be caught three years later with a budget that’s three years old. And most people do that, they’ll monitor. And especially in high inflationary periods or in locations that are experiencing larger inflation than others. And so you can catch that. So it’s very critical to measure and then manage that and that’s a very critical thing for development, especially larger projects when there are macro things that are happening that you are not in control of.
Spencer Burton (26:28):
It’s relevant to development no doubt. I think it’s relevant to all real estate investment. The reason for the regular reporting, essentially, your LP partners, your lender, they’re asking you to measure and report and they can therefore manage you through those numbers. And I think what Sam is saying is we on the GP or sponsor side, or really any organization, but especially in real estate need to likewise, we measuring on our end measuring maybe in a more consistent fashion.
Spencer Burton (27:05):
That actually leads me to a second point. One of the biggest challenges in commercial real estate is the obsolete technologies that we use to manage our projects, whether it’s in the acquisition phase, the development phase, whether it’s portfolio management. A part of that is the industry dominated by large organizations with what we might call legacy issues. They’ve been using those same tools for a decade or two and they get $40 billion under management. And all of that are within a tech stack within certain programs that maybe they don’t speak to one another.
Spencer Burton (27:56):
The problem is when you’ve got hundreds or thousands of properties valued at billions of dollars in these programs, it’s really hard to say, you know what, this tech stack is 15 years old. And it is. Imagine watching TV on a 15-year-old TV. It’s embarrassing. And essentially, we in the industry are managing our assets on 15-year-old TVs. And everyone knows that they should be shifted to a more modern technology, but it is very difficult because you’re managing as you go in these old programs.
Spencer Burton (28:37):
So, as you’re thinking about management, having the right tech stack, having the right combination of technologies in order to measure appropriately, in order to report accurately and in a timely fashion in order to speed along or make more efficient the various things that you during portfolio asset development management is essential to stay ahead and in this world that we’re in in real estate right now.
Michael Belasco (29:10):
A part to that is how do you do that? How do you make sure you’re staying relevant? You need to be as part of managing, you need to be out in front and searching for these technologies, making sure you don’t… We talk about in a previous episode, the people with the IRAs in the backs?
Sam Carlson (29:30):
Michael Belasco (29:30):
You don’t want to be those guys, but you want to make sure that you’re keeping up and that your team is aware and that you have this ability or this mindset as a company to be flexible and be able to adapt and change and shift with growing technology because technology is moving incredibly fast. So I think it’s a great point.
Sam Carlson (29:47):
I heard the CEO of a software company once to say that he, not qualifies, re-interviews… Basically, he reassesses his skillset every single year. So re qualifies himself for his position. He’s CEO of this company of this big software company and every single year, he makes sure that he is the right person for the job. That is the antithesis of what you’re… I mean, that’s what you’re saying really is you’re saying you have so many people and people are involved in this exact same situation, too. If you’ve been in your position for 20 years and you haven’t taken continual education or really kept up on what’s working now and you’ve just kind of been around, that’s not enough. You can’t continue to be the best version and ascend to better opportunities doing that.
Sam Carlson (30:49):
What I liked about this was it made me think, well, listen, whether it’s you or the software you’re using, you ought to be the best version always. And you need some sort of checks and balances, and in this case, it’s every year for this person. And to your point, the tools that you use are a big part of that too.
Michael Belasco (31:15):
Your best version, you take that to the management team. That’s a team assessment and your tech stack assessment and your process, your processes, how are they all working? I love that. It’s constant re-evaluation which should always be happening to make sure that you guys are executing or whoever your team is executing.
Spencer Burton (31:34):
Yeah. And let me provide an example just so there’s a story to go along with it. There is a good portion of the industry in either the management, loan servicing, maybe even underwriting they ingest operating statements. When we say operating statements, they’re hundreds of lines long and it’s all the income and expenses of a property over some period of time. And they ingest those meaning they retrieve that information through PDF files. And then in many cases, an analyst will 10-key… The term 10-key mean use the 10-key number pad on your… Literally 10-keying in values into some other program because the PDF doesn’t speak to the other program. There are technologies out there that are trying to solve this issue that aren’t widely adopted in the industry. And so you have a highly paid analyst and even more senior that, that are spending hours and hours and hours every week 10-keying in information because it’s in a form of data that doesn’t talk to their existing tech stack.
Spencer Burton (33:02):
And that’s just one example. And if we had time, we could go through dozens of examples like that, where technology needs to be improved. And those who figure a way to bring their tech stack into the 21st century are going to outperform the rest in the industry.
Sam Carlson (33:19):
I think the reason why this is particularly… In the context of a management conversation, which we’ll bring it back. If listening, we will bring it back in just a minute. I think that in the con in the context of your guys is what you’re doing now, you guys really are using technology in a completely different way that speeds up and makes more efficient managing your plans and bringing to fruition these things.
Sam Carlson (33:49):
So, in the context again, of your point to update your tech stack, what should people be looking at? What types of things? Without revealing anything specific, but what types of things should people be utilizing or working towards to implement what you’re talking about?
Spencer Burton (34:10):
What I would say is bring in people that are not in the industry that have a perspective that’s outside the industry. That is one of the keys to leveling up your technical capabilities.
Michael Belasco (34:30):
Yeah. I would… Sorry, the question was around what can you do technologically?
Sam Carlson (34:39):
Yeah. We know that we need to… Spencer’s comment was about technology and how it’s really archaic at this point in many cases. And there’s so much out there right now that’s underutilized that can make the speed and the deliverable results so much faster and more specific and better. But it’s not being used. So what can we do to implement that? And so Spencer was saying, and I totally agree, bringing people that have new skill sets, you shouldn’t expect people in traditional roles to invent solutions like this. That’s probably not their skillset.
Spencer Burton (35:24):
Well, the key to me is… I’m sorry, Michael, but the key to me is pairing practitioners, seasoned CRE professionals with those that have a outside perspective. And when you pair the two… Because, you need the seasoned person who understands the problems. But then you pair it with someone who actually knows a solution to those problems and thinks outside the box about those solutions.
Michael Belasco (35:54):
So one of the things I would add is, okay, so now what? You have these people, you have the right people, you’re thinking about the right technology, there needs to be a deep analysis of your current processes and what you’re doing and there needs to be a diagnosis. Because you need to understand where your weaknesses are and by doing that with an outside perspective and a mind towards optimization and utilizing technology, you will uncover your biggest inefficiencies and you’ll be able to then utilize the appropriate technology.
Michael Belasco (36:23):
There is a plethora. I mean, there’s just thousands of new things coming on all the time, and it’s exponentially growing the amount of technology that’s available. So it’s really understanding your needs first and where your weaknesses are. And part of that is having an outside diagnosis of that problem, because you’re so involved, it’s hard for you to see sometimes.
Sam Carlson (36:44):
Let’s try and bring it back to the execution of your strategy. That’s what we’re really talking about today. The whole idea, you’ve got a strategy. We’re making deals, we’re putting them through and now it’s time to execute. Having the right team is one, knowing what to measure.
Sam Carlson (37:04):
I think that in my mind what this conversation maybe hasn’t included yet is, it’s great that you have a plan of what the thing should be, and portfolio or whatever should be. But the person who executes also needs to have their own plan, find out the result you are looking at and then reverse engineer back to how they’re going to execute. And I think that was some of the principles of the 80/20 is like figuring out what things can you do to speed up the result and get what you need. So…
Spencer Burton (37:45):
In the context of commercial real estate and management, really what that is, is a shared vision around the strategy. And when I say strategy, I’m speaking in the context of maybe an individual asset or a development project.
Spencer Burton (38:00):
Let’s imagine that I buy a 60% occupied office building in San Diego. I say I buy. As a maker, I go out and identify this office building. Rents are 25% below market. The lobby is outdated, there is a good amount of deferred capital expenditures, meaning the building’s in somewhat disrepair and the tenants frankly aren’t happy and that’s why the building’s under-occupied. And so the plan goes, all right, I can buy this right now at a discount, let’s refresh the lobby, let’s update the HVAC system, let’s pass the holes in the roof and let’s spruce up the landscaping. Let’s change out the leasing team to someone that just has a fresh perspective on it. Let’s get this to 90% occupied, let’s roll the existing tenants to market and three years from now, let’s sell this building.
Spencer Burton (39:09):
And this sounds like a great plan. I put it down… Michael’s due diligence team says, yeah, this is totally possible, the investment committee is 100% on board. We close, I hand it over to the management team and then I’m off looking for another office building. And that management team that has a responsibility to take this idea and make it happen and if there’s not a shared vision… So first off, if they haven’t bought into the vision in the get go, it’s never going to work. And if they don’t understand the vision, if they don’t share the vision and then push that vision to reality, it’s a failure.
Sam Carlson (39:54):
Spencer Burton (39:54):
And so to me, what’s key is that shared vision. Now, one of the deficiencies in our industry and those who are more senior in the business and listening to this will I’m sure are nodding their heads. There’s a real disconnect between acquisitions and asset management. A real disconnect. Part of it is social. We’re just different type of people. Acquisition people are type A personalities. Asset managers are generally more type B and I don’t mean that in a positive or negative way to either side, they’re just different personalities that are attracted to acquisitions, which has kind of front facing asset management which is more ownership related.
Spencer Burton (40:31):
And as a result, they don’t communicate, share perspective in the way that they should have. Oftentimes the asset management team isn’t even involved in the acquisition. In some shops, that’s how it is. It’s like, here you go, you better go and make this happen because we think it’s a great idea. And so what needs to happen is greater integration between acquisition asset management. Asset management should be there from the very beginning. Acquisitions should stay around through the management process and such that shared vision, shared ideas-
Sam Carlson (41:11):
Shared knowledge base. There’s a lot of value from the asset management team. Depending on what shop you’re at, they can inform the acquisitions team about the realities.
Sam Carlson (41:20):
I think that’s great and a value add scenario. That’s a good scenario. And there’s some cases where, it’s core, it’s not that exciting where there’s just an obligation to execute and make sure that the trains are arriving on time and they’re leaving the station on time and all that’s in place, the reports are getting out properly, which that becomes more of an automatic process once you become more established.
Spencer Burton (41:44):
Let me give you though an example of a core scenario. You think core, and it’s like, oh, asset management doesn’t do anything.
Sam Carlson (41:51):
Because it’s just-
Spencer Burton (41:51):
It’s just not, it’s just not the case.
Sam Carlson (41:53):
Spencer Burton (41:53):
Or, in reverse the acquisition team can add no value to an asset manager, asset manager managing a core asset. In a past life, I worked in a team where I was kind of in an acquisitions role, and we only discovered that assets that we had acquired were going to market once the broker let us know. There was that kind of between the asset management team and the acquisition team to the point where there was no feedback elicited from the acquisition team to say, “Hey, what should we price this at? Is now even the right time to take this to market? What are your thoughts on whatever?”
Spencer Burton (42:35):
And by the way, the exact reverse happens, acquisitions out there buying assets and market. And these asset managers they’re in the market. They essentially own assets in those markets and the asset managers are finding out at closing, we bought a building up the street from a building that we already own, and they know that there’s major tenants leaving and that we probably shouldn’t be buying in that sub market right now.
Spencer Burton (42:59):
So anyway, there’s that disconnect that a firm that wants to excel finds ways to integrate and share vision between the asset management teams, the makers and the doers essentially.
Sam Carlson (43:14):
Well, I think this has been awesome. I don’t know. I mean, in summary, I think we’ve kind of been in a lot of different directions with this particular episode. I think it piggybacks very nicely onto the other episodes we’ve talked about with the right team, the right skill sets, focusing in the right places. Communication, clearly communication throughout this entire season has been a big deal. Anything we want to add to this?
Sam Carlson (43:45):
Okay, no. If you’ve watched, listen, whatever the case may be, thanks for watching. The next episode is the last one. We’ve had a ton of fun. I’m learning a ton. Are you guys learning from each other now because-
Spencer Burton (44:01):
I’m learning from you.
Sam Carlson (44:02):
Well, thank you. As much as Spencer right now. I think just the three-way synergy is a lot of fun, but at the same time, it’s like all of these things where these situations arise, it’s like, well, if we would’ve communicated better, we probably could have not had that problem, whatever the case may be. But anyway, thanks for listening and we will see you on the next episode.
Thanks for tuning into this episode of the Adventures In CRE Audio Series. For show notes and additional resources, head over to www.adventuresincre.com/audioseries. Would you like to learn real estate financial modeling in a matter of weeks and do it with zero guesswork? If so, the A.CRE Accelerator is for you. The Accelerator is a step-by-step case-based program designed to teach you exactly what you need to know and in the order you need to know it, so you can gain both the knowledge and experience to take your career to the next level. To see if the Accelerator is right for you, go to www.adventuresincre.com/accelerator.