LOS ANGELES - Stan Ross, chair of the University of Southern California Lusk Center for Real Estate, has been through 10 real estate cycles in his career and says there are many benefits to be gained from the current downturn if companies take the right steps to stay in business. In fact, he believes the survivors will become highly productive, more efficient, stronger teams operating with increased transparency for the good of the industry.
"We're going to wind up with some really solid companies by the end of 2010," forecasts Ross, who helped create the federal government's Resolution Trust Corporation 20 years ago to sell off non-performing real estate loans owned by troubled savings and loans.
Among the advice he gives to developers, homebuilders, property managers, investors and lenders:
Centralize to gain control - Successful managements understand what is happening everywhere in their organization. Reorganize, restructure and flatten your organization and take a hands-on approach to decision-making.
Rely more on technology and less on people - Use information technology, software and automation to better understand and control your business. Learn how to handle activities with fewer people.
Talk with your lenders and investors - They do not want to own your buildings. Work with them to modify existing financing or refinance if possible.
Cash is king - Liquidity is the primary goal. Sell assets to create a cash cushion. Market your unsold inventory more aggressively. Centralize your accounts payable to strictly manage your cash outflows. Understand your receivables. Set up direct deposit accounts for tenants. Know who owes you money and deal with delinquencies quickly. Monitor your cash flow daily.
Control your costs - Go through every expense line item and find savings. Re-bid everything. Evaluate your pass-through costs. Become a more efficient organization.
Evaluate your outsourcing - Now is a good time to consider outsourcing accounting, legal and marketing services since professional service firms are cutting fees.
Know your tenants - Be proactive with your tenant customer relationships. Do whatever you can to enhance them. No one should understand your tenants and their needs better than you do, especially your competitors. Retention is critical.
Communicate as never before - Increase communication and transparency with your employees, tenants, lenders and investors. Encourage more team approaches to problem solving. Support teams managing struggling assets so they know they are not alone.
Share your energy and commitment - The energy from the top has to be at a high level. You need optimism backed by a real belief that you will survive and succeed.
None of this is easy, but with the right strategies and the right team Ross believes real estate industry professionals can look back on 2010 with satisfaction, knowing they transformed their organizations in time to benefit from a more prosperous future.