This post was written for The Ground Floor by Joseph Klem, vice president of Virtual ULI at the Urban Land Institute.
The future of real estate holds opportunities for the large and small real estate firms, but mid-size players are in a dangerous position, said panelists at Urban Land Institute’s Real Estate Summit at the Spring Council Forum in Boston.
Larger players, especially real estate investment trusts (REITs), are getting stronger and more specialized, noted Colin Dyer, president and chief executive officer of Jones Lang LaSalle. They have deep enough pockets to tackle international opportunities, and to hire specialists for fast-changing areas such as regulatory compliance. Consolidations will cause the "bigs" to keep getting bigger, panelists predicted.
The small firms can grab local opportunities, leveraging their relationships to get smaller deals that the top firms cannot profitably tackle, panelists said. "Big firms like mine, I worry about the little guys every day," said Michael D. Fascitelli, president and chief executive officer of Vornado Realty Trust. It’s the mid-size firms who should beware, and perhaps position themselves for acquisition, panelists said.
Other tips:
• "Aging start-up"” owners should take a hard look in the mirror. "I sometimes have the tough task of recommending to the founder, the entrepreneur, of an aging firm that they should step out of the way," said Honorable Mahlon "Sandy" Apgar IV, senior scholar at the Woodrow Wilson Center for Scholars.
• Apgar also suggested that real estate firms of the future should reconsider their view of teaming. "Everybody in this room knows how to team," he said. "The shift, and I think it’s a tectonic one, is to go from teaming on a deal, to teaming the enterprise."
• Know the target market, and stick to it, recommended Thomas W. Toomey, president and chief executive officer of UDR, Inc., which owns and manages residential apartment communities. "We focus on 25 specific markets, and we know our target customer: 20 to 35 years old," he said. "We focus on operations and increasing margins. Sixty-seven cents on every dollar we collect in rent goes to the bottom line."
• Overseas markets have their risks, as Jones Lang LaSalle’s Dyer noted. "We bought into an existing office building in China, based on the promise that no other office building would be built in that area," he said. "But just a few months later, a hole opened up across the street for a new office building."
• Vornado Realty Trust’s Fascitelli added that despite the overseas risks, those markets still hold great potential if firms know how to pursue them. "The Chinese are smart, entrepreneurial, they work hard and have tons of money," he said. "Get to know them."
