Five elements will define the real estate firm of the future.
The real estate firm of the future will be defined by five elements: “teaming,” “greening,” un–real estate, partnerships, and enterprise. The following provides a thumbnail sketch of each.
Teaming. Everyone in real estate works in teams. The tectonic shift in real estate management is from forming teams by project to forming teams across the enterprise. Real estate firms that reach beyond the deal and know how to partner with global capital sources, global tenants, and global service providers will have an enduring competitive edge. But this requires wholly different mindsets and capabilities than those of today’s real estate organizations. The team-driven real estate business also shifts from an equity-based structure to a fee-based model in which clients and tenants share in value creation and team success. The fee-based, service-oriented real estate firm eventually may become part of its partners, much as U.K. pension funds absorbed developers and asset managers in the 1970s.
Greening. This begins with green buildings—but that is now the obvious and easier part of a green business strategy in real estate. Making green a way of organizational life is tougher. It starts with leadership at the top—a personal and institutional philosophy of respect for resources, a mandate for conservation in development and operations, and a practice of inculcating habits to recycle and reuse. Leaders can leverage their organizations’ transformation to green business by recruiting those who already embrace a green ethic in their personal values and behavior—as does nearly every 20-something. These newcomers help drive cultural changes from the bottom up more quickly and effectively than is likely through top-down management reengineering. They are a major factor in the successful adoption of corporatewide green principles by Google, marketing giant WPP, and other first movers.
Un–real estate . The future real estate firm today is expert in helping users decide how to manage the full spectrum of independent workplace options—in homes, in hotels, in planes—as well as in providing up-to-date offices, call centers, and production facilities. The alternative workplace (AW) developer manages process more than product. Because the new real estate business is team driven, fee based, and service focused, it builds equity through ongoing partner relationships. These are the new assets in real estate. Employers are mainstreaming AW programs in core business functions, so real estate firms have a choice: either shape the AW trend or risk becoming an also-ran.
Partnerships. The public/private partnership (PPP) is the form du jour for nearly every real estate project in which a public purpose is served through private enterprise. The best PPPs show that real estate firms produce significant benefits for all stakeholders of large, complex projects by combining their vision and skills with the political legitimacy and legal authority of local, state, and federal governments. ULI members helped design and launch the U.S. Army’s far-reaching military housing and commercial real estate PPPs of the past decade, and pioneer the next generation of mixed-income, mixed-finance, mixed-use PPPs with local housing agencies, such as Atlanta’s. Where will you be in the next wave of this trend?
Enterprise. Finally, real estate firms of the future embody the ethos and energy of enterprise. Is there still a role for the entrepreneur who built this industry and much of this country? The answer is emphatically yes, especially for small-scale developers who are quick and nimble in finding local sites, securing entitlements, assembling teams, marshaling financing, and producing significant returns on capital (though on a smaller base than large-scale developers) as well as on their time and talent.
Despite the fragility of the economic recovery and the serious challenges that loom ahead, this is a rare moment to be either at the top or at the bottom of the real estate industry stack. It is those in the middle who are being squeezed. If you are not prospering—or at least surviving—look up, down, and across your sector for alliances that offer immediate scale and added capabilities before you are consumed by the consolidators or the liquidators. Or, maximize your strengths in your local product niche, befriend your bankers, dilute your equity with nonbank capital, deleverage to the maximum, and tailor your risks and rewards to what you know best.
