SVN International recently had their 35th Annual Conference in New Mexico which was the first such gathering in two years due to the pandemic. As part of that conference, advisors from all over the country and asset classes gathered to connect and collaborate. While the energy was high and records are being broke in many categories, those of us who lived through the great recession still remember how dramatically things can quickly turn.
As such, the topic presented in the Land & Development Product Council focused on not only how to deal with buyers and sellers in this strong market, but also what should an advisor be doing to prepare for the next cycle. The basis of being an advisor who focuses on the Relationship not the Transaction is the basis for this set of questions. The following 5 simple questions & answers were presented:
1. What do I tell Buyers who say that prices are too high or I missed this cycle?
- Values should be off Fundamentals. Frankly, maybe they are right? However, using data and reasonable assumptions will help advise the Buyer whether or not the potential purchase makes sense or not.
- Land Projects generally take a Long Time: Those with the best timing are ahead of cycles and realize that the timeline from acquisition through entitlement is a long process. Building a downturn into the pro forma will help account for the impact of a time period where things may slow down or stop.
- Don’t Over Leverage: A basic fundamental in land investment is that if you can afford to hold onto the property, it generally will come back. The benefit of land is that the carrying costs are easier to project than ‘sticks and bricks’.
2. What do I tell my Sellers who say Market Values will continue to rise?
- History says it won’t: There are articles from 2005 and 2006 that seem eerily like the articles that are out in 2022. Hindsight vision is 20/20 and there are numerous stories of developers who lost everything in the last cycle trying to squeeze every dollar out of a deal.
- If prices continue to rise, the next investment will likely rise too: While this probably isn’t a strategy to base investments on, it does shed light on the idea of the seller who believes the cycle will never end. Having a investor, especially one who creates value through entitlement process, sell their current property and invest into a new opportunity would not only gain the entitlement value but also the ‘rising market’.
- Easy answer is Pigs and Hogs: Everyone knows this expression and it likely will prove to be true again.
3. What do I tell a Seller who says they don’t know what to do with the Money if they Sell?
- Land was Illiquid in the Last Cycle: Land became a bad four-letter word in the last cycle and became fairly illiquid (unless selling at steep discounts) in the great recession. Planning for this may help a seller realize that selling may be the option to meet their goals.
- Convert to Land to a Cash Flowing Asset: With gains that are exceeding expectations now, converting land to a cash flowing asset may help those land developers (myself including) who value cash flow in a down market. Don’t focus on the low cap rate environment, but rather on the gross dollars especially when that return is based off a value that includes the gains.
- Consider Value Add through Entitlement or Development: Many Sellers who says I already know what I have in my land so I will hold can further the value of their property by investing into moving their property into or through the entitlement process. As an advisor, that might not get a check today, but it could result in a consulting agreement and/or larger listing down the road.
- Getting ‘Dry Powder’: There is an expression in real estate that says “the money is made in the buy”. Having liquidity available for the downturn might be the strategy for a Seller (or a Buyer for that matter).
4. How do I grow my practice?
- Larger Deals: – Focus on your track record and the creation of the marketing collateral for it. Advisors are doing bigger and more deals, make sure you can present this success to others. Many advisors are saying they are too busy for business development. Hopefully, they can revisit the broker continuum to understand that the pipeline for clarity.
- Grow your Team, Presence, & Knowledge of Others: Adding advisors to do more deals in your market or to expand into another market is a good way to grow your business. However, a continued effort to grow your personal presence in a market as well as knowing who the other players or specialists are is equally important.
- Technology & Systems: – Technology is rapidly changing and spending the time to make yourself more efficient will create more time not only for more deals, but more time to have a personal life.
5. What Should I be doing to Prepare for the Next Cycle as a Land Broker?
- Connect or Reconnect with Relationships that Will be Relevant: For those of us who lived through the REO days understand the importance of receivers, asset managers, and REO departments of banks. Reconnect with those relationships even if they aren’t sending you business today. You will be ahead of the curve when the distress comes.
- Invest in Yourself: – Training, certifications, and self-development are all important to career development. This might not be a today item, but it may make sense to focus on these items while the bid and ask don’t meet when the market slows down.
- Invest in Technology: Spend time exploring and learning new technologies in real estate. It is changing so fast that it is important to allocate time to staying on top of what is out ther.
Whether dealing with a buyer or seller in a strong market or preparing for the inevitable end of this cycle, the key to a long-term career in land (or commercial real estate for that matter) is to continue to do the fundamentals of the entire broker continuum on a daily basis over a period of time. One of themes of SVN’s national conference was to ‘do your 20’ every day and that was good advice. Right now it might be easier to make deals that in other times and don’t get caught without a chair when the music stops. Most importantly, focus on relationships not the transaction. The rest will take care of itself.
Ashley Barrett Bloom, SVN National Land & Development Services Product Council Chairman. He has been affiliated with SVN for approximately 10 years. Mr. Bloom has established his practice as a land expert locally, regionally, and nationally. By combining a strong network of Offices & Advisors with a spirit of collaboration, Bloom provides his clients with a listing team that provides local expertise with a regional & national platform. To further add value to clients, Bloom has taken on the role of owner’s representative in the entitlement process of multiple projects. With a long history in land development, Bloom has extensive relationships with industry professionals as well as buyers of both residential and commercial land. In 2018, Bloom and long time business partner, J. Chris Malkin, founded SVN Lotus Commercial Real Estate Advisors. SVN Lotus was founded with two offices in Charlotte & Sarasota Counties and is well positioned to service Southwest Florida. In 2020, Bloom teamed up with Scott Maesel (principal in SVN Chicago & Denver) for form SVN Commercial Partners based in South Florida.