If You Live Your Life Planning for the 100-Year Flood, You’ll Never Be an Entrepreneur
NMHC’s Emerging Leaders program kicked off its 2014 Speaker Series on February 26 in San Francisco with three of the leading multifamily executives in the Bay Area sharing their views on where we are in the cycle and what they think is in store for 2014 and beyond.
Kara Wiard (Eastdill Secured) and Ian Couwenberg (Sack Properties) moderated a discussion with S. Osborn (Oz) Erickson, chairman of Emerald Fund; Al Pace, CEO of Pacific Urban Residential; and Roger Snell, chief investment officer of Veritas Investments. A key topic for the evening was the historic nature of the Great Recession and the lessons learned by these senior executives.
“In 2009, the wheels came off,” said Erickson. “I’ve never seen a collapse in residential values like that. ... In the last cycle, you didn’t enter into negative equity, you ended up in it.”
“We’d been badly burned in past cycles, so we thought we were very prudent and didn’t take on significant leverage,” he noted, but the last downturn reminded us that “even when you try to cover yourself as best you can, you still have exogenous factors you don't control.”
“We never handed back a property, but we wrote a lot of big checks to re-margin loans,” said Erickson. “We had to ask our lenders to carry us for two years and we had partners contributing $50-$60 million in equity to avoid default.”
“We’re all up here talking about how much money we’ve lost,” noted Snell. “Unlike Al, I lost a lot of personal money. That’s why we are really nervous all the time.”
But Pace warned that what happened was akin to the 100-year flood, and if you live your life planning for 100-year flood, you'll never get out there and be an entrepreneur.
What lessons did they take out of the experience?
Pace changed his business model to diversify into more revenue sources, and he says he’s even more committed to the investment strategy they’ve had since founding the company in 1998: investing in markets that have two characteristics-fairly insulated from new supply and a place where capital wants to participate in a long, sustained basis.
Snell also broadened his capital base to optimize today’s opportunities and better prepare for when they do take a turn. When asked about the competition for good deals, he dismissed the concern, saying, “If it’s easy to find good deals, then it’s a bad time.”
Erickson meanwhile advised anyone going into the development business that guarantees are the thing that can sink you. He urged attendees to “stick with equity, the largest you can get. Equity doesn’t send you into bankruptcy.”
Looking forward, all three agreed that San Francisco’s future prospects are bright, but Pace said that while he shares the collective optimistic outlook, “our team knows I walk around a little bit like Charlie Mansons’ comment-paranoia is just total awareness.”
He also commented that he thinks the length of the cycles has shortened as a result of the transparency of the REITs. “Cycles used to be seven years, but the REITS changed all that,” he said. He said he thought San Francisco has three years of strong growth before the next cycle starts.
Speaker Series Event: May 12 in Boston
Join us on May 12 in Boston at the Mandarin Oriental for our second 2014 NMHC Emerging Leaders Speaker Series event.
Emerging Leaders Chairman Mike Darling (Walker & Dunlop) will moderate a fireside chat with Robert Slater, chief administrative officer at Bell Partners.
Slater will offer insight from his 26-year real estate career spanning both the public side of the industry as the EVP of Property Operations at AvalonBay and now on the private side with Bell Partners.
Space is limited to the first 75 registrants.
Learn more or reserve a space here. Special thanks to our sponsor, GID.
Houston Emerging Leaders Gather for Informal Networking Event
Nearly 60 Houston-area Emerging Leaders gathered on April 3 for an informal networking event organized by Emerging Leaders committee members Philip Meyer (Camden Property Trust) and Ricardo Rivas (Allied Realty).
In between the networking and enjoying a Texas-style buffet, attendees also got the inside scoop from Camden Properties Trust’s CEO Ric Campo on Houston’s efforts to secure the Super Bowl. Campo is spearheading the local effort.
Take a look at some pictures from the event.
Mark Your Calendar
Mark your calendar for the final two 2014 Speaker Series events:
• September 16: Washington, D.C.
• November: Atlanta
How Your Emerging Leaders Can Get Involved
NMHC’s Emerging Leader program is open to anyone under 40, with five years of industry experience and employed by a member firm. Designed to both create new networking opportunities and engage the next generation of multifamily leaders within NMHC, there is no limit to the number of employees a member firm can sign up for the program.
Like other NMHC events, we limit the number of registrations for our networking receptions and Speaker Series events to ensure they are engaging and valuable to the participants. However, there is no requirement that the same people attend the various events. In other words, a member firm can have 10 different people in our Emerging Leaders database and a different person from the firm could attend each event.
We encourage you to have the promising leaders from your company:
- Sign up for the NMHC Emerging Leaders Database
- Join the NMHC Emerging Leaders LinkedIn Group