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investment sponsor

Adaptability: The Ultimate Virtue

A successful sponsor will need to have the ability to adapt to an ever-changing real estate landscape.

One question that real estate investors often ponder is, what does it mean to be a good sponsor? At first glance, it seems that a good sponsor is one who can identify profitable projects and complete these projects in a way that is mutually beneficial to both themselves and their investors. But this answer, while true, is similar to saying that ‘good food’ is what makes a good meal—if a firm wants to put itself in a position where it can successfully complete profitable projects, it will need to have some guiding virtues to help push itself forward.

There are countless virtues investors in a syndicate want to see including experience, track record, integrity, compatibility, forward-thinking, and connectedness. But perhaps more importantly than anything else, a successful sponsor will need to have the ability to adapt to an ever-changing real estate landscape. This is something that was especially apparent in 2008, amidst an almost unprecedented change in the real estate market, and the need for adaptability has also proven itself to be unrelenting amidst the entirety of the COVID-19 outbreak. As harsh as Darwin’s “adapt or die” philosophy might sound, it is a reality that directly affects firms involved in seemingly every speculative market in existence.

As we are quickly beginning to discover, the market for office space—at least during a pandemic—has proven itself to generate even more uncertainty than the housing market and many other property markets. After all, the need for housing—of some kind—is as old as human civilization itself, whereas the need for office space is something that can fluctuate, depending on the state of the economy and the state of society as a whole. For example, as a consequence of the unexpected COVID-19 outbreak, workers around the world shifted their work from an office setting to a home setting. Even as some people have begun returning to work, many have discovered that they prefer working from home and that they can do their job just as well (and in some cases, better) from home as they could in their old office.

Suppose that even 12 percent of former office workers do not return to their original place of employment as this study by Gensler suggests. Even with this rather conservative assumption, this still represents an apparent 12 percent shift in long-term demand for office space and is not something that can easily be ignored. This sudden challenge, once again, is something that is calling for office owners to think on their feet and quickly adapt.

Changing markets, changing strategies

As some office owners are quickly discovering, succeeding in the current climate requires firms to modify their value proposition. For example, rather than focusing on the uncertain future demand for office space—as inflexible firms might be tempted to do—a firm that is willing to think outside the box and focus proactively on the positives is much more likely to be successful. For example, shifting to office settings where each employee might require more individual space (as COVID-19 has demanded), and by addressing concerns that tenants have head-on by creating safer and better sanitized office settings, are all ways that firms can get ahead and benefit themselves, their tenants and their investors while their competitors sit stationary and indecisive.

One example of a firm that has experienced this sort of success has been Feldman Equities, an office owner with more than 4 million sq. ft. under management in Tampa, Florida, and who is a GowerCrowd client.  Until the pandemic took hold, Feldman’s competitive edge was to focus on creating more office settings by blending work and life into a single location with amenities such as food courts, communal "chill zones" with Wi-Fi, bright well-lit lobbies and expansive gyms; now they focus on safety and hygiene.

By seeing opportunity in the wake of chaos, Feldman has accelerated their efforts to capture market share from other operators in the market. While it may be true that there could be a decline of 12 percent in demand as that percentage of workers stays at home post COVID-19, or that that may be counterbalanced by the demand for more space per person in offices as a result of the pandemic, what Feldman understands is that a competitive advantage can be gained from the uncertainty.

Spending hundreds of thousands of dollars portfolio wide, Feldman has installed UV light and ionization systems to sanitize the heating, ventilation and air conditioning systems within his buildings.  They have installed sanitization stations throughout buildings and provide face masks at no charge to tenants.

“My M.O. has always been that when we go into recessions, we have to outdo our competitions and take market share,” Larry told me in a recent strategy call. “With everybody in panic mode, this is our chance to take market share. A lot of people go into fear and apathy in a situation like this.”

If this year has taught us one thing, it is that all markets have become unavoidably uncertain. But rather than fleeing from risk, it is crucial that we develop an ability and the virtues needed to embrace it. Adaptability, by nature, is a universal virtue because no matter what might happen, those who are adaptable will be able to rise to the occasion. While there are few constants in this world of ours, perhaps paradoxically, the need to adapt to change will always remain at the forefront.

Adam Gower Ph.D. is an authority in content marketing and online communications for the real estate industry. He has more than 30 years and $1.5 billion of transactional experience in commercial real estate finance and investment. Today he builds best of class digital marketing platforms for private clients so they can raise more capital online and provides online courses for those who want to do it themselves – all at GowerCrowd.com and learn more about how to syndicate real estate projects online using social media, click here.

 

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