Editor’s Note: This is the second in a series of three Opinion articles on topics of central importance to leaders of real estate enterprises large and small. See the other two, "Revitalizing Your Real Estate Organization" and "Opinion: Restructuring Your Real Estate Information."
Strategy is your organization’s guide to long-term success. It captures your aspirations and actions, highlights opportunities, defines roles, and structures profitability.
If the recession and uncertainty have clouded your current strategy, consider recasting it both for short-term survival and for long-term sustainment. These goals should be complementary: during the long, bumpy recovery ahead, close attention to asset optimization today will enable your dreams to be realized tomorrow.
To some in real estate, strategy is an oxymoron because of the industry’s opportunistic, property-specific nature. Though you may prosper through individual deals, a clear, robust strategy ensures that, over time, your vision will be executed through your entire portfolio of projects and programs. Vision and rhetoric are not a substitute for strategy; they are the leader’s tools to communicate it.
Rather than report what you can read elsewhere or repeat what you already know, I summarize five elements that, in my experience, distinguish successful real estate strategies but are unrecognized by many executives and boards.
Value. Strategic developers create value by visualizing what could be, not what is. See space as a resource, buildings as products, and capital—both human and financial—as enablers. Combine the economics of use with the management of utilization. Entitlements may limit property values, but uses are fungible. Team with owners to repurpose their buildings. Capture tenants by helping them variabilize their costs and increase user flexibility. Master the entire value chain of facilities functions, not solely those you now perform. Evaluate which functions are the core of your strategy and which you can ignore. Then, dispose of, outsource responsibility for, or partner with specialists on the noncore functions; array them in unique configurations; simplify and expedite long product/service delivery life cycles; and price the risk-adjusted premium for your initiative. Measure each facility’s use—the key performance indicator of real asset value.
Destinations. Every building is a destination. Creating destinations that captivate people is the surest way to generate value. Firms on “best place to work” lists locate in vibrant mixed-use complexes where shopping, services, restaurants, and gathering space attract employees; Baltimore’s Inner Harbor and San Francisco’s Mission District set such standards. Think about settings: young professionals find lively workspaces more appealing than places dominated by large fixtures. Yet everyone still needs periodic privacy. Despite the evidence, office developers often ignore imaginative design and creative merchandising. Act like a “workplace retailer.” Infuse appeal into every aspect of development and operations. Differentiate your products to attract both tenants and customers. Walk in their shoes to increase your relevance and reach. Deepen those relationships to secure new markets before others envision and capture them.
Imagination. Strategy is about imagining the future, not predicting it. Imagination is instinctive for some, but learned by most. To strengthen strategic imagination, start with analysis—what has worked, what has not, and why. Take a holistic view: a piecemeal approach defeats creative strategy. Go beyond extrapolating past events: successful developers are attuned not only to the existing marketplace, but also to demographic, political, and technological trends. Perform “gap analyses” of where needs are unmet by your current offerings and by your competitors. Identify hitherto unthinkable choices—some impractical but others doable. Insist on facts to support (or forestall) new initiatives and to defend (or challenge) existing ones. Seek creativity, not clairvoyance. Design matters in imagination, as Hines proves in offices and Disney in theme parks. But designers must be managed, as Rouse showed in retail centers. The adage “War is too important to be left to the generals” applies here, too: design is too central to strategy to be left to the designers.
Community. Strategy should define your organization’s public purpose as well as your private goals. Whatever your role in the real estate value chain, you shape the built and natural environments. You produce and operate communities, from single buildings to entire towns. They are the realization of your mission. Your products last, evoking peoples’ satisfaction —or their scorn. Hence, your strategy should eye both current and future occupants; drive the interplay among work, living, and play; emphasize green features; and measure the full impact of your activities—social, economic, physical, and environmental. Unlike governments and universities, you can choose to ignore your impact, but you should at least decide on the facts. Understanding these aspects will sharpen the choices for your organization and your investors.
Trust. Trust is a strategic asset and the glue in real estate partnerships. It can be more valuable than property. The more trusting your tenants and employees, the less supervision they require. Despite voluminous contracts, large deals and enduring relationships are sealed by handshakes. Trust is cultivated when candor and transparency are business practices, not platitudes. Collaboration builds trust through shared purpose, joint problem solving, and mutual benefits. The corollary of trust is reputation—so easily tarnished if customers or stakeholders feel you have deceived them. Though you may execute the preceding elements without emphasizing trust, your strategy will be stronger for doing so.
Recasting your real estate strategy likely will entail changes of direction—from survival to superior performance, from competition to collaboration, from project-driven to user-driven. This new direction may become your lasting legacy for the organization.