Opinion: Real estate leaders, it’s time for a course correction

Having started my first residential brokerage business in Marin County, California in 2006, I enjoyed 20 months of hyper-growth as a start up only to get slammed by the September 2008 meltdown of the equities markets – The Great Recession!

Now is the time for brokerage leaders to change course.

I had small, boutique offices, a highly qualified and nimble professional staff and all were striving to make our real estate professionals as successful as possible. We also had a fiscal discipline required by a start up without venture capital funding. In Q4 2008, revenues [GCI] fell by 40% and stayed there until March 2009.

We developed a weekly fiscal focus that proved successful for the next decade. Every Friday at 5 pm, I received a report on new listings, new escrows, closings, and a rolling 90-day cashflow forecast. We had no choice but to manage the survival of the business.

We closed the Pacific Union acquisition in August 2009. Our due diligence was all paper-based, no face-to-face meetings with the management team. Our only interaction was with GMAC Home Services [then owned by Brookfield].

Once closed, I remember my first meeting with the then CFO of Pacific Union. I asked, “How does cashflow look for the next 90 days?” We now own the business doing $50 million in GCI and an annual run-rate net loss of ($3.7 million).

The CFO said, “We don’t worry about cashflow, GMAC writes all the checks.”

I was clearly stunned and afraid.

That next day we implemented the exact same Friday at 5 pm reporting system described above and it continued 620 Fridays until a year after we were acquired by Compass.

I share this as they are instruments needed in bad times as well as good times — the lifeblood of a brokerage business.

Our industry has enjoyed 10 years of dynamic markets and the last 20+ months of likely the finest of modern-day times. Net income has never been better.

Now is the time to course-correct for the future — during 2022 — which may be another excellent year.

Now is the time to review every expense in your business. Now is the time to correct the P&L for a market that will clearly adjust in the next two years. Inflation, rising interest rates, geopolitical issues, decreases in NCD % all take a toll on your P&L. Top-line growth via units sold and price appreciation tends to mask all inefficiencies.

Here are many of the actions we executed on and that you may consider.

  • Closed our HQ office. HQ team worked in local branches near their homes.
  • Routinely closed non-performing branch offices – especially in M&A situations.
  • Expiring leases were typically vacated for 50% smaller offices.
  • Eliminated “training department” and made sure professional staff were experts on technology resources.
  • Optimized professional staff levels based on agent to staff ratios and shared workload across offices.
  • Annually reviews every “consultant” relationship to reduce spend.
  • Annual audits of technology users’ vs subscription to reduce spend.
  • Annual audits of marketing and advertising programs to reduce spend.
  • Annual audits of Misc. or other expenses to reduce spend.

What will you do with your real estate portfolio of offices? They have generally been vacant in for the last 24 months, and your results are vibrant. Could you get by with 25% to 30% of the footprint you have today? It’s a tough question, but with declining NCD %, something must give.

Real estate professionals need vision, leadership and a sense of community. Some of our most valuable programs were those getting real estate professionals together – the “MIX.” Six times a year we would pay for 25 professionals to fly from Southern California to Northern California to meet with 25 other professionals – our costs were 25 airline tickets, hotel rooms, a bunch of cocktails and a few meals. The comradery, relationship and deal flow that followed was amazing.

I’d rather do twelve MIX’s a year than fund empty offices.

The point is not to take me literally, please take these thoughts directionally. Course correct in good times, well before a market correction.

Finally, the communication plan around changes as described above is often more important than the changes themselves.

Mark McLaughlin was previously chief real estate strategist for Compass and is founder of McLaughlin Ventures, a real estate consulting company.

This column does not necessarily reflect the opinion of RealTrends’ editorial department and its owners.

To contact the author of this story:
Mark McLaughlin at mark@mclaughlin-ventures.com

To contact the editor responsible for this story:
Tracey Velt at tvelt@realtrends.com

Leave a Comment

Your email address will not be published. Required fields are marked *