Market Drastically Turns. How Do You Pivot?

Listen, I'm no doomsday guy. But let's talk about the thing on everyone's mind. Acquisitions folk out there - you get dumped during a capital markets freeze - what do you do (take a less prestigious job, change industry, wait it out, etc...)

For those older Monkeys (much respect) who experienced layoffs in the great recession, any wisdom you can share?

Hopefully this ride lasts a bit longer, but curious on the group's thoughts

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Comments (34)

Apr 20, 2018

I've just focused on being the best guy at all the technology, hopefully that keeps me ahead of everyone else.

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Apr 20, 2018

I imagine lots of people who had 3-8 years of experience during the 2008-2010 timeframe went to business school. The opportunity cost of going to b school is much lower if there isn't good work available

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Apr 21, 2018

That was my plan. Try and get a good two/three year run as an analyst and then head back to school for a year or two to get a MSRE if the market turns and we all get shitcanned.

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Apr 21, 2018

RE MBA. Studying for the GMAT right now just so I can have it in my back pocket.

Apr 21, 2018

So much of how you land is just luck. I got laid off in the great recession and ended up at a better job with twice the pay a week later. Colleagues who were much smarter than me and had better collegiate performance virtually all left the real estate game (gov't consulting, doctor, etc.). You could get an MBA to credential up to make it less likely you'll get laid off or more likely you'll get re-hired, but the reality is, you don't know which (RE) jobs will still have demand--maybe you will be over-qualified for the available RE jobs if you have an MBA. Maybe your MBA gets you a good pay boost now but leads to you getting the ax as a person who is paid too much in the next downturn.

I would say this--soak up as much information, knowledge, experience and contacts as you can right now so that you can be the individual taking advantage of the situation in the next downturn, buying up property for cheap. No matter how good you are, there is no way in CRE to ensure your own career survival as an employee. You just can't see the future, and as an employee you are not empowered to help direct the path--as an employee you are a rudderless boat that may end up stranded at sea or safely back at the harbor.

Apr 25, 2018

"As an employee you are a rudderless boat that may end up stranded at sea or safely back at the harbor."

Ice Cold, but true!

"All men are alike in their dreams, and all men are alike in the promises
they make. The difference is what they do."-- Jean Baptiste Moliere

Apr 25, 2018

Better that than to be the business/property owner whose boat ends up at the bottom of the ocean once their mortgage goes underwater!

Apr 25, 2018

or the lucky one who managed to sail it through the storm right into Monaco

Apr 25, 2018
Ozymandia:

Better that than to be the business/property owner whose boat ends up at the bottom of the ocean once their mortgage goes underwater!

Yeah, but you have control over that. It's no accident if you are the last man standing, so to speak, in a real estate market collapse. My employer, for example, has always maintained low leverage portfolio (<30%) and during the early 1990's it was left standing to buy up property. Yes, much of entrepreneurship is luck, but much of it isn't.

Apr 25, 2018
real_Skankhunt42:

Yeah, but you have control over that. It's no accident if you are the last man standing, so to speak, in a real estate market collapse. My employer, for example, has always maintained low leverage portfolio (<30%) and during the early 1990's it was left standing to buy up property. Yes, much of entrepreneurship is luck, but much of it isn't.

I mean I was being a bit facetious, but when you say "last man standing" you are referring to the people who time the market collapse just right.

Many don't, and not because they're stupid, but because it's very difficult to be properly prepared for a market downturn. All very well to say your employer was way underlevered, but what is the context? Old family money/buildings don't need a lot of leverage, but the vast majority of developers can't afford to build a building on less than 50% leverage. If you are running a business, you need to show returns or you aren't going to do anything. If we all knew when the next collapse was coming, we'd all prepare by ensuring liquidity and low leverage.

TL;DR - if you own and are putting owner equity into deals (generally the case at some level) you have a lot more risk than your employment status. You cut staff because you literally can't afford to carry them anymore; there's a lot more at stake.

Apr 25, 2018

They have low leverage portfolio because they pay down debt as quickly as they can. That's not "timing the market" or being lucky; that's a strategy that they have complete and utter control over. That strategy starts from the time you get a loan by demanding the right in loan covenants to pre-pay debt at any time.

Like I said, real estate entrepreneurship has a lot of luck involved with it, but it also has a lot of strategy involved with it. You can't control your destiny 100%, but you can control a lot of it. I don't agree with the notion that being a RE entrepreneur necessarily leaves you exposed to the whims of chance. I just don't see it, especially with all of the historical precedent we have where we can learn from past mistakes.

Apr 26, 2018
real_Skankhunt42:

They have low leverage portfolio because they pay down debt as quickly as they can. That's not "timing the market" or being lucky; that's a strategy that they have complete and utter control over. That strategy starts from the time you get a loan by demanding the right in loan covenants to pre-pay debt at any time.

Like I said, real estate entrepreneurship has a lot of luck involved with it, but it also has a lot of strategy involved with it. You can't control your destiny 100%, but you can control a lot of it. I don't agree with the notion that being a RE entrepreneur necessarily leaves you exposed to the whims of chance. I just don't see it, especially with all of the historical precedent we have where we can learn from past mistakes.

OK, so let's say you build a new market rate rental building. You end up with like 60% leverage on it and it's generating 6% a year - that's a great deal (in NYC, where I have experience, at least) that any developer would jump at. Yeah, if you plow all of your cash flow into paying down debt, then you can get to 30% leverage in 5 years. Of course, you also have to tell your investors they aren't getting a cent of cash flow for half a decade. That just isn't feasible for most developers - what I eat is based on hitting my hurdles.

The point I'm making is that getting to a position where you can be underlevered takes time. Your principals have had that time, which is great. But if you time the market wrong, you're screwed. Part of that is skill, because maybe I didn't see the bubble and you did, but a lot of it is luck.

Moreover, not every developer has the ability to command everything they want in their loan docs. Sure, Related can probably get whatever it wants, but if you're starting out in the business, you have no leverage over your lender. And even if you do, pre-paying debt is all well and good, but that money has to come from somewhere. If you're a deep pocketed company you can infuse the equity yourself, but 95% of developers aren't capable of that or aren't willing to erode their own carry to do so.

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Apr 25, 2018

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Best Response
Apr 25, 2018

Throw my yamika back on and start cold-emailing every family office whose CIO's name ends with -Stein, -Witz, -Berg or -Man

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Apr 25, 2018

God I love this guy.

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Apr 27, 2018

WTH IS RON CLUE WHEN YOU NEED HIM!!!

    • 1
Apr 25, 2018

Wouldn't getting into REO at a loan-to-own lender be a great spot to be during a crisis? Think Beal Bank.

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Apr 25, 2018

Great thought, any players you see as potential leaders in the loan-to-own space?

Apr 25, 2018

Beal Bank, most mezz/bridge shops.

Apr 25, 2018

My good guy old boss worked for Beal Bank during the last downturn. He said it was interesting, but the pay and benefits were bad. Said the hardest part was when kids fresh out of school would ask to talk to him, he always told them "I am making right now what you think you should be making.". However, he was still thankful enough to have a job and be able to cover his mortgage. Great guy to work and learn from.

Apr 25, 2018

It would be, if you can get hired. I remember interviewing with several of those institutions in 2011, and the competition for the available spots was fierce because there were a lot of applicants.

Apr 25, 2018
ThatGuyBalls:

But let's talk about the thing on everyone's mind.

Why is a "drastic turn" on everyone's mind?

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Apr 25, 2018

Self reflecting, I think it's because most of my college courses revolved around what happened in 08 and 09. In hindsight, a majority of my finance program was a case study. I try to remind myself that the GFC was an outlier relative to other dips, in terms of massive size and the amount of time it took to dig out of it. Regardless, I think an unintended (maybe intended? Professor nerds) consequence of some of the course work I went through is higher risk aversion. We focused on what went wrong as opposed to what can happen when things go right. It was also centered around real estate.

Also, I think I'm applying a subconscious snowball effect to our current bull market. The longer it rolls down the hill, the bigger it gets and the more catastrophic it's going to be when gets to the bottom of the hill.

Personally, all the stories about people who lost their jobs, contrasted with stories of people who correctly timed the market and made a killing have me a bit hyper focused on trying to be in the right place at the right time.

In reality we have only have so much control over where we are professionally, the next crash will more than likely not be centered around real estate, and the length of our current bull run isn't an indicator of how bad or long the next dip will be. I have to remember that if I spend my life trying to time things, I'm going to miss out on a lot. Oh yeah and life goes on...

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Apr 26, 2018

Planning for emergencies is key, "It wasn't raining when Noah built the Arch!"

"All men are alike in their dreams, and all men are alike in the promises
they make. The difference is what they do."-- Jean Baptiste Moliere

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May 7, 2018

LoL, monkey shitting Noah! Finance heathens lmao!!!

"All men are alike in their dreams, and all men are alike in the promises
they make. The difference is what they do."-- Jean Baptiste Moliere

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May 8, 2018
Pershing ROI:

...Noah built the Arch!"

I didn't know Noah was from St. Louis!

Apr 26, 2018

The actual answer to your question is most likely that none of us have enough capital to be legitimate players on our own yet and realize we are essentially number crunching cost centers.

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Apr 25, 2018

Nothing wrong with thinking about this at all. Not to drag the discussion too far off topic, but....I think most people are vastly, vastly understating how much QE has done to prop up all asset values, and are vastly, vastly underestimating the coming effects of the balance sheet unwind. The last year where asset prices seemed 'normal' to me was about 2014. If equity markets and property values revert to even those levels the average Joe will freak out. But take $2 trillion off the balance sheet and increase the National Debt by a few trillion and watch it happen.....

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Apr 25, 2018

I have this mixed feeling because literally very aquisitions shop is in the same boat. A lot of people are pulling back the reigns, but isn't that when things go higher? and higher? And it is when people think if its gone this high surely it will continue are the ones who get stuck holding the bag.

There is too much risk aversion right now for a downturn. There might be a pullback and more money moves out and we get to a higher high, but a real downtown is going to be 10+ years away, (Prediction)

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Apr 25, 2018

I'd apply to top RX shops

What concert costs 45 cents? 50 Cent feat. Nickelback.

Apr 26, 2018

I call my daddy. That's what I'd do.

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Apr 27, 2018

If you get dumped as an Acquisitions guy during a downturn, think of this as 1) shitty, unfortunate, and/or 2) a liberating experience to reposition yourself for growth.

A downturn, granted it doesn't kill you, doesn't kill your marriage; is an amazing opportunity. Staying away from sociopaths, crooks, will help your odds.

On your own, it's a mutha f'ing jungle. Nobody is going to pay you good money to goof off. Most of my consulting gigs came to me with tough time pressures, but that's the value you bring. Your value comes from how well you do things and how fast.

I fell back on Accounting (get your CPA you auditors reading this RE forum). I worked on bankruptcies, distressed properties. I tried raising capital. I worked on some really depressed priced assets. I also worked with shady characters, and I was suckered in because I wanted to make moves, work with folks I thought had access to wealth and fame. I was young, looking for that.

It was a waste of a crisis. I worked on multiple opportunities with some benefiting me today, but wasted my time and lost some money (got it Madoff'ed) on my biggest project.

So, Acquisitions guys. A good number of you will get cut in a downturn. I was not hireable for FP&A jobs (and thank goodness, I would be far less successful today) because I was seen as a flight risk when the economy recovered. It got shitty not having a job, but you end up hustling to create value to survive.

The repositioning part is the long game. You are free now from the hamster wheel. Go find something unsexy and make it sexy. Go find someone in distress that needs help. Help them. Years later I worked on deals connected to the folks I helped.

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May 8, 2018