Crisis Leadership in Commercial Real Estate – Making Sense of the Uncertainty
It’s relatively easy managing a commercial building or investment property during a bull economy. Lenders are content, mortgages are easy to come by, depressed capitalization rates drive rising property values, and the majority of residents pay rent on time. Inevitably there are headaches, but each management action carries decidedly less risk.
In the face of a crisis, the playing field looks vastly different. Tenuity leads to chaos, exposing the stratification between crisis leaders and those who withdraw at the prospect of uncertainty. Presently, the commercial real estate industry is replete with ambiguity and disorder; owners must shift their focus from managing their property’s P&L statement to truly leading through crisis. Having served as an Infantry Officer in the Army, I had the privilege of working alongside individuals who deftly navigated impossible situations with success. I’ve identified the common tactics employed by those leaders and outlined them below:
Don’t conflate expectation management with pessimism. Positivity is contagious, and individuals are inclined to follow leaders who exude optimism. Unadulterated optimism is a dangerous phenomenon, however, as disappointment stemming from missed expectations becomes a self-fulfilling prophecy.
Crisis leaders must be adept at analyzing a situation and pragmatically altering their expectations based on realistic outcomes. Leadership doesn't stop there; how a leader articulates those expectations to his or her organization is the key—similar to the way commercial owners must manage their net operating income (NOI) expectations over the next 12 months. Properly managed expectations foster mutual trust and understanding throughout an organization.
Understand the Stages of a Crisis – Expand Your Aperture Beyond a 12-Month Planning Horizon
Every problem has a lifecycle. Like any crisis, the Coronavirus pandemic can be segmented into three distinct lifecycle stages: what has happened, what is happening, and what will happen. While it sounds straightforward, crisis leaders must be able to differentiate one stage from another to make sound decisions.
A Manager loves to focus on the short term; how do I survive the next 60 days? During times of chaos, the human psyche is wired to focus on reducing entropy. What if I told you that the decisions crisis leaders make today can actually impact their organization’s success for the next 3-5 years and beyond? By expanding your focus aperture beyond a short-term planning horizon, you avoid over-managing the present and, in turn, lead to success in the future.
In the Face of Ambiguity, Strive for Clarity and Decisiveness
A crisis is hard to navigate because of its fluidity. The Army communicates this sentiment with the saying, "the best-laid plans never survive first contact.” This is relevant whether you are leading the operation to cross the 73rd Easting or positioning your firm to endure business cycle downturns. Planning for a crisis is essential, but the problem always looks different from how it was drawn up on paper.
More important than the plan itself is the actual process of planning. Adaptability isn't some hard to define skill that's called upon during times of crisis. Instead, adaptability is developed and sharpened through the planning process and enables crisis leaders to make informed decisions in dynamic environments.
The goal as a crisis leader is to seek clarity and order, rather than trying to centralize control of a situation. Those who place emphasis on planning as a process instead of planning as an outcome tend to have more success.
Leaders understand cause and effect. A crisis merely exacerbates symptoms of a problem that were masked during the good times. As an informed landlord, you know that the economic shutdown has all but dried up your tenant's cash flow, but how does that affect their ability to pay rent in 12 months, and what does it mean for the future? Are their goods or services elastic to demand changes when consumers have inevitably less discretionary income? The most effective crisis leaders answer those questions to best position their buildings for profitability in the future.