RISMEDIA, February 25, 2010—With 2010 expected to be another slow year for real estate, many industry executives and analysts are wondering what additional steps—beyond cost cutting and downsizing—can be taken to weather the turbulent times.
The answer, according to Bill Ferguson, author of the new book Keepers of the Castle: Real Estate Executives on Leadership and Management, is actually quite simple. Only leadership—strong, balanced, and experienced leadership at the executive level—will pull the industry through to the next upcycle.
To rebuild America’s largest industry, today’s leaders must avoid the mistakes that led to the real estate market’s recent struggles. Here are some of the most damaging:
Mistake #1: Letting your ego get the best of you.
Pre-Real Estate Bubble: Television shows and films exaggerate and embroider the stock character of the real estate mogul—the bold opportunist with a glamorous but sometimes fatal mix of arrogance, intolerance and unchecked ego. Unfortunately, egos of this nature were all too real at some organizations. As the bubble inflated, some executives—many supported by outrageous salaries and bonuses—made closed-door deals and involved their companies in fuzzy financial deals whose potentially huge payoffs were saddled with huge risks that eventually harmed many of their companies.
As We Rise from the Rubble: “Egocentric leaders who blur the lines between personal and corporate interests or who are intolerant of the perspectives of others should not be welcomed at today’s real estate companies,” says Ferguson. “High-performing CEOs recognize that gaining the confidence and loyalty of all employees is one of their most important objectives—they need to show a firm command of issues and develop a strategy that works. These CEOs understand that time spent creating a high-profile public persona can often be distracting and counterproductive.”
Mistake #2: Allowing intra-organization competition to hurt the company.
Pre-Real Estate Bubble: Too many organizations (homebuilders, mortgage finance firms, etc.) paid their people to originate volume, not to underwrite risk!
As We Rise from the Rubble: “Many real estate businesses revolve around investment transactions or sales forces,” says Ferguson. “The individuals on these teams are typically provided incentives for production volume, and the more successful organizations orient these employees as coworkers and collaborators rather than competitors. Bottom line: Company performance targets need to take priority over individual achievement.”
Mistake #3: Forgetting the proper risk balance.
Pre-Real Estate Bubble: If anything kept the real estate bubble inflated it was unfettered risk. Homeowners took on mortgages they couldn’t afford. Lenders loaned the money to them. And investors traded in financial inventions—like credit default swaps and mortgage-backed securities—that many of them didn’t fully understand, while CEOs allowed their organizations to trade these risky investments.
As We Rise from the Rubble: “Success is all about taking calculated risks and winning a lot more than one loses,” says Ferguson. “Everyone in an organization needs to take risks in order for a company to grow and remain competitive. But leaders who rise to the top and stay there, consistently make the right decisions in weighing risk. Standout leaders have an inner compass—the ability to set the right course instinctively based on intelligence, experience and innate good judgment. They also create environments where people can learn, take risks, grow from successes as well as mistakes, ultimately benefiting their business.”
Mistake #4: Pretending to have all the answers.
Pre-Real Estate Bubble: “Know-it-all” CEOs—control freaks whose communication style edges toward dogmatic rigidity—can drive organizational opposition underground and grind businesses to a halt.
As We Rise from the Rubble: “For a CEO, acknowledging not having all the answers is an essential component of leading by example and rallying the team,” says Ferguson. “It can transform weakness into strength. When you communicate a sense of vulnerability, you connect with people. It helps build a winning, low-ego, ‘we’re all in this together’ culture, embodying a team orientation over a ‘me’ orientation.”
Mistake #5: Allowing lax management to become a business strategy.
Pre-Real Estate Bubble: Most CEOs grew up as entrepreneurial deal makers. Their impatience, drive to do it themselves, and insensitivity to those around them didn’t allow them to fail! However, true leadership requires a different recipe.
As We Rise from the Rubble: “Effective leaders realize they must complement their tried-and-true, kick-the-bricks instincts with MBA skills, financial proficiency and a managerial temperament,” says Ferguson. “In fact, institutionalizing entrepreneurship has become the paradigm for real estate leadership in today’s globalizing economy. The challenge of doing so requires companies to install effective management platforms that can nurture and preserve entrepreneurial vision and avoid the chokehold of bureaucracy.”
Mistake #6: Avoiding change.
Pre-Real Estate Bubble: For a short time in the early 2000s boom, some prominent industry players made the argument that inexpensive capital had removed cyclicality from the real estate business. The ensuing credit crisis obliterated that notion. Even wizened leaders have been reminded to resist complacency and anticipate the risk of cyclical change as investors have been crushed across the board.
As We Rise from the Rubble: “To profit from new strategies in the shifting real estate landscape, change needs to be well considered and implemented expeditiously throughout ever more complex and sophisticated organizations,” says Ferguson. “Under any circumstances, the playing field constantly changes. Interest rate fluctuations, economic tides, consumer confidence levels and demographic shifts ripple through the marketplace, requiring constant attention and analysis even during the most prosperous times. Complacency can kill any business—you can’t take anything for granted. High-performing companies can never rest on their laurels.”
Mistake #7: Going global the wrong way.
Pre-Real Estate Bubble: Rampant corruption and lack of transparency can hamper or short-circuit forays into developing markets. Risk is magnified exponentially, and local management needs to be given discretion but with the appropriate risk management oversights.
As We Rise from the Rubble: “The march toward business globalization means that real estate company management teams must be oriented toward developing global strategies and seeking lines of business overseas,” says Ferguson. “Effective teams must be able to operate across borders with an understanding of how to maneuver around cultural and national differences. Nurturing partnerships and relationships with experienced local players in growth economies around the world will become more essential to enable company expansion.”
Mistake #8: Hiring prima donnas.
Pre-Real Estate Bubble: Deal makers, more interested in their own success, versus prioritizing the client’s and/or company’s needs, have stymied the growth of successful real estate firms.
As We Rise from the Rubble: “Winning management teams discourage ‘rock star’ hires—executives who use company platforms to launch personal success rather than fostering company achievement through working with others to build platforms,” says Ferguson. “Managing and leading well in a large organization means surrounding oneself with good people.
Mistake #9: Avoiding responsibility.
Pre-Real Estate Bubble: The aftermath of the bubble burst is littered with CEOs and executives at big time companies, who made decisions that were truly detrimental to their organizations’ health but who in the post-bubble rubble look around and say, “Who me?” when others try to assess responsibility.
As We Rise from the Rubble: By taking responsibility for mistakes, leaders underscore the importance of accountability throughout the organization and help establish a strong value system for people to support each other, as well as encouraging collaboration.
About the Author
William J. Ferguson serves as chairman and CEO of Ferguson Partners Ltd. and as the co-chairman and co-CEO of FPL Advisory Group.