Leading for the Long Term: European Real Estate Executives on Leadership and Management
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About this ebook
Based on a series of interviews with key leaders of Europe’s real estate development industry, this book offers wisdom and lessons learned through decades of experience. It provides guidance for surviving the inevitable downturns and taking advantage of rising economies. Future leaders of the industry will gain pointers as they create road maps for their careers, while experienced leaders will find tips and insights from some of the best and brightest in the industry.
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Leading for the Long Term - William J. Ferguson
CHAPTER ONE
The Lay of the Land
IN ANY BUSINESS OR INDUSTRY, and especially one as cyclical as real estate, the test of a leader comes not when things are going well—when it seems to the uninitiated that the sky’s the limit and there’s fast money to be made. The real badge of honor is earned over the long haul by persevering through the inevitable downturns. Recognizing that the good times will not last forever and pullbacks are a reality, industry survivors manage businesses prudently by managing risk proactively.
When a downturn becomes more than the typical correction, escalating to crash and crisis, survival is not guaranteed. Only the most prepared, disciplined, and well-capitalized businesses will sustain themselves through the fall. In such times, humility more than hubris dictates survival.
Most of the real estate leaders interviewed for this book admit to surprise at the severity of the 2008–2009 global economic crisis. Even those who had an inkling that a downturn was coming did not expect it to lead to the worst drop in commercial property values since the 1920s.
Although not without their share of scars and lingering bruises, the most notable leaders in European real estate are still standing largely because of their leadership principles. And chief among those principles: avoid the temptation to chase short-term returns in what is, by nature, a long-term business. While overleveraged and overexposed competitors fell by the wayside during the crisis and in its aftermath, companies led by people with long-term strategies were able to stay the course through the downturn and position themselves to seize the first opportunities that emerged. Theirs were the first cranes back on the skyline and the first sizable developments in markets that once again were showing promise.
Yes, timing plays a role in success in the real estate field, as it does in any business or sector. But values matter even more in a transaction-oriented business like real estate. This author’s previous book, Keepers of the Castle, contains interviews with U.S. real estate executives who endured many cycles, including the most recent fiscal crisis, demonstrating that they understood the fundamentals and never chased the fads as they built great companies with long-term vision. Similarly, in its follow-up, Market Discipline—The Competitive Advantage: Lessons from Canada’s Real Estate Leaders, a clear connection is made between the value system of Canadian real estate executives and the health of the sector in that country. In Canada, more stringent bank lending practices, strong relationships among real estate leaders in a tightly knit industry, and a general aversion to too much risk exposure shielded the industry from much of the impact of the financial crisis.
In this book, the focus is on Europe, where Ferguson Partners has been active for many years, including at its London office, established in the mid-1990s. Through its executive recruitment activities, the firm has had a front-row view of trends in the industry and an opportunity to observe and relate to its leaders. From this perspective and through the interviews conducted for this book, certain fundamental leadership principles have emerged—such as having the right instincts and experiences, managing risk, and taking the long-term view—that are as central in Europe as they are elsewhere. Other leadership values, however, appear to be more uniquely European, such as stewardship and legacy. There is a real sense of caring for what has been entrusted to the current generation by those who have gone before, as well as a feeling of obligation to provide for those who will follow. In a landscape of such historic depth, the long-term view takes on another dimension.
Other values evidenced among European real estate leaders relate to the reality of running a pan-European business. Even with economic unification of the European Union, significant differences remain among countries in language, culture, and ways of doing business. To bridge these differences, pan-European real estate firms place great value on the local team. This team is crucial to risk management, which becomes even more important in running a pan-European business. Investing in various regions in the United States (West Coast versus East Coast) or in Canada (Toronto versus Vancouver) is not as risky as dealing with the pronounced differences one encounters in Europe. Consider, for example, how different Greece is from Germany—economically, politically, and culturally. The complexities of executing a pan-European strategy are not for the inexperienced.
As the profiles of leaders in the following chapters show, many tend to specialize in a particular market (London, for example) or sector (such as retail). Although their company portfolios may be diverse, their core businesses tend to be focused on those few things they do extremely well. Trying to be all things in all markets carries huge risk, especially during downturns.
The European Environment
The most challenging environment for real estate companies was the global financial and economic meltdown of 2008–2009, which began in the U.S. housing market, detonated in the financial sector, and resulted in decimated investor portfolios. The crisis hit like a tidal wave, buffeting financial and government institutions and ultimately all businesses with unprecedented force. As the European Investment Fund wrote in its 2009 annual report, 2009 was the year in which the global economy experienced its most severe downturn since the Second World War. The unprecedented period from 2008 through 2009 will be recalled as the Great Recession.
¹ To shore up the system, massive government and central bank interventions were launched to avoid doomsday scenarios. Across Europe, plans for recapitalization, purchases of problem assets, and some nationalization of banks were part of a systemwide rescue plan. Amid a weak world economy, European economic activity contracted by about 4 percent—evidence of a steep recession.
By 2010, modest improvement began to evidence itself over much of Europe, but there were significant differences among the European Union countries. A debt crisis erupted first in Greece, with threats of similar crises emerging later in Ireland and Portugal, followed by fears in Italy and Spain. With every new wave of panic, many doubted the future of both the Eurozone and the euro. Those fears, as discussed later in this chapter, have proved largely