December 15, 2009

Thanks to Ernst & Young, which released a report today revealing the shifting and vastly different post-recession real estate landscape. As an executive, how do you grapple with these new challenges?

One basic principal that the report states is that real-estate companies must look ahead and plan for their future. D’uhhh! What company doesn’t have to look ahead, and strategically plan for the future? Okay, so here is their point more clearly defined, “Whereas two years ago, real estate executives spent most of their time on new deals, now their focus is on protecting assets, controlling costs and, most important, managing cash flows,” says Ray Drost, leader of the Transaction Real Estate group at Ernst & Young. “It’s the executives who show ingenuity and have the courage to make tough decisions who stand the best chance of establishing themselves as industry leaders.” Point well taken.

Below are 10 lessons from change that have emerged for the sector, which are also quickly becoming trends for 2010. According to the report, those who take heed of this advice are more likely to continue to adapt and grow in an increasingly global and competitive real estate market:

  1. Focus on capital preservation – Most real estate executives are and will continue to be concerned with stabilizing their organizations nd enhancing their ability to access capital and improve the flexibility of their balance sheets. Maintaining liquidity is paramount to capitalizing on future opportunities.
  2. Form strategic alliances and/or partnerships with foreign investors – Partnerships will be formed to acquire assets on a scale never seen before. Expect Canadian companies with strong balance sheets to venture into foreign markets.
  3. Provide more effective risk management and protection of asset values – Real estate companies are revamping their framework to more effectively manage risk. Pricing risk appropriately will define future growth.
  4. Provide an increased focus on tenants – Property owners are becoming more diligent in evaluating the creditworthiness of tenants to determine who might present a risk. In light of this, underwriting will become even more stringent.
  5. Evaluate supply chain and contractors – Corporations who hire developers and construction contractors are evaluating the risks of having financially troubled contractors/suppliers who could file for and stop work on a project.
  6. Prepare for increased taxes and government regulation – Companies are preparing for regulatory framework – around private equity investment funds in particular, as well as arranging for fuller disclosure of investment plans, asset verification and other information of interest to shareholders.
  7. Control costs and streamline operations – Companies are improving their overall performance, with issues such as tying executive compensation to performance resurfacing.
  8. Look at Canada’s relationship with the US – While there are noticeable differences between Canada and the US in terms of macro- economic structure and real estate fundamentals, don’t overlook the influence and effect of our largest trading partner.
  9. Accelerate decision-making – Decisions are being made more quickly to take advantage of shorter windows of opportunity and to respond more quickly to adverse developments.
  10. Concentrate on long-term growth – Real estate executives are thinking about the future. They’re looking at extending their company’s market reach, building relationships, thinking creatively and strengthening their management capabilities.

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