Q3-2009 Canadian Real Estate Employment Survey

The following is an abbreviated version of our more comprehensive survey on Canadian market conditions effecting finance and acquisitions. This version focuses specifically on our findings and commentary regarding employment.

The survey assesses executive opinion regarding the following:

1. Employment demand in 2010;
2. Functional changes likely to take place with respondents organizations over 2010;
3. Critical human resource priorities with respondent’s organizations;
4. Economic factors shaping respondents opinion.

The survey will be repeated in Q4-2009 to empirically measure any subtle changes in executive opinion.
Receive instant notification of the survey’s publication by subscribing to this Blog or via the Rutherford Real Estate Newsletter.
The complete survey may be found on this Blog by linking HERE.

Download Employment Section of Survey Here:
Rutherford_Emp_Survey_Q3-0909.pdf

Q4 - 2009 Calgary Investment Cycle Interim Report

The review is designed to highlight senior executive opinion on the "direction" of investment fundamentals and volume transaction activity. This is an "interim" report - final report will be published January 2010. This is the first of a series of reports that will span a variety of cities throughout North America, Europe, Asia and BRIC countries.

Rutherford_Cycle_CG-Q409-print.pdf

Canadian Real Estate Executive Market Condition/Employment Survey Results

Measuring opinion during third quarter 2009:
1. Fundamentals for acquisition and financing up to 2011,
2. Employment demand for 2010,
3. Functional changes over 2010,
4. Critical human resource priorities,
5. Economic factors shaping respondent opinion

Rutherford_Survey_0909.pdf

Canadian Real Estate Executive Market Condition and Employment Survey

Rutherford International’s will be distributing the results of its Market Condition and Employment Survey - Third Quarter 2009 through its newsletter next week. To receive a copy of the complete survey, Rutherford International blog readers should go to our Home Page at http://www.rutherfordinternational.com and register on our Newsletter link, or via the REmatrix.com Commercial Real Estate Portal at http://www.rematrix.com/newsletter/rematrixnewlet-registration.html

The survey was designed to provide a third quarter snapshot of senior executive opinion on the state of their industry during the latter month of July and early August 2009. The questionnaire was directed to the top and first-tier executives within the Owner/Developer/Lender/Service sectors of Canada’s commercial real estate industry.

Segmented by sector, opinion was measured on the following:
a) Fundamentals for acquisition, disposition and financing for the next two years;
b) Employment demand within the industry in 2010;
c) Functional changes likely to take place within respondents’ organizations over 2010;
d) Critical human resource priorities within respondents’ organizations;
e) Economic factors shaping their opinion.

Two survey reports are available. First, a comprehensive sector-based analysis for respondents and second, a general overview for the industry at large. Some of the questions and excerpts of our analysis are highlighted below.

Excerpts:1. Fundamentals for acquisition and disposition in 2009 through to 2011/04.The results suggest the vendors’ lack of market cycle certainty in 2010 with the pricing gap between ‘buyer’ and ‘vendor’ expectations continuing well into 2010. "There is a perception that lenders are afraid to foreclose, which is keeping sellers hopes high."

2. Fundamentals for financing and refinancing in 2009 through to 2011/04.Lender" respondents were more inclined to choose "Favorable" for both ‘financing’ and ‘refinancing’ in 2009 and 2010; however they were less sure of conditions in 2011. We believe their uncertainty for 2011 is due to ....

3. Based on current economic climate, employment opportunities in the commercial real estate sector will:
Be limited to modest growth in leasing, accounting, asset and property management. Vacancy will be primarily due to normal attrition and voluntary turnover with general, employment opportunities within the industry remaining "static" well into 2010. If recovery is in the offing, it will be a "jobless" recovery. The impact of retirements, "geared back" or semi-retirement life/work styles, and the incoming "baby boom echo" or "double cohort" offspring entering lower middle management positions should be evident by 2012.

E: Key Findings – By Sector with Commentary
(This information is available in the survey results reserved for respondents.)

F:Commentary Excerpts
"Appraising Back to the Future"In terms of acquisition and disposition, aggressive valuations have been blamed for contributing to the variance between "Buyers" and "Vendors."

"I’ll Have a Bromo with that Denominator Effect"
It is also assumed that an increase in the equity markets will result in ameliorating the ‘denominator effect’ leading to a return of institutional capital to the real estate market for Class AAA and AA assets.

"Sitting on a Picket Fence can Hurt!"It’s a bit of high stakes game that’s being played in some shops – ante up with house stakes – ‘Check’ when able – and enter 2010 with a plan to make fine adjustments and seek quick opportunity plays; but in general – mark time until the industry completes its de-leveraging.

"Retaining your Walking Assets"The predicted demographic labour supply bust, which all industry and government sectors are currently experiencing – and self evident by respondents concerns over ....

"Forward to the Future"The worrisome trend that emerged from the analysis is that respondents appear to place little importance .....

"Peter’s Principle Exposed"We purposely referenced the term "effective" to emphasize a human resource reality that generally becomes evident in recessionary markets after a long wave rise in the economy.

"Economic Recovery and Generational Knowledge Transfer"Good managers are the product of acquiring "tacit" knowledge, ....

In general, anyone under 45 today wasn’t in a position of management and leadership during the last major recession .....

"Best Case – Leveraging Brand & Grabbing Talent on Waivers"Companies that prepare for recovery ......

"Worst Case - A Dead Cat Bounce"Lenders are less sure about the fundamentals for real estate in 2011 then that of the Broker and Owner respondents....

It would seem to us that the ability to think laterally, to problem solve creatively; to sort out the winners and losers when identifying tenants for "blend & extend" negotiations (or to inoculate an asset’s mix with a good balance of recession and high interest rate resistant tenants); or to squeeze out additional "Net Operating Income" or negotiate financial workouts will be long-term and valued skills in our industry going forward.

Three Market Opportunites & What We Can Do For You

Rutherford International Executive Search Group Inc.
We support clients that need to: improve their executive, staff, investment and development teams; insert interim CRO and/or CFO expertise into an organization; and/or identify strategic and alliance partners in local and foreign markets, which includes coalescing expertise for Public Private Partnerships.

Real Estate:
We have experienced more than one recession as a real estate search consultancy; late 1989 to late 1994 were years of hardship for any profession that serviced the commercial real estate industry. Rutherford International was new, and we adjusted to this lengthy recession by staffing financial service companies with mortgage valuation and restructuring experts; leasing executives that understood blend/extend strategy; and property managers that understood tenant retention and the importance of “Net Operating Income.”

This credit crisis in Canada is much different than in the United States; conventional commercial mortgage lenders in Canada (with the exception of certain strained markets) are not convinced that they will see any significant increase in their “Special Loan” files.

We have approximately 2000 individuals in our resume files who claim to have expertise in real estate repositioning and workout, so we decided to find out if there would be a requirement for this skill set by surveying the lending community. Surprisingly, the consensus is that we are six months ahead of ourselves in terms of demand for a clearinghouse of experts with this kind of experience.

Current interest rates and deep pocketed ownership are the primary reasons for this perspective; however we’re not convinced that the industry can sit in sublime isolation, inattentive from what’s going on within the commercial real estate world. Real estate may be local, but Canada sits at the wrong end of the global supply chain. The lender’s primary concern is the cost of long-term capital in thirty months or less as the international capacity to borrow reaches its limits, and global capital begins to flow to the highest interest unhindered by national borders.

Expertise in mortgage workout is not in high demand as of yet; however knowledge in stabilizing values through operations and leasing will more likely be a requirement at the ownership level; REITs with limited cash reserves, dispositions and erosion of unit values will undergo stress. As well, the restructuring of real estate service companies (particularly those focused on transaction and development) along with home builders and owners of retail and industrial property in tertiary markets will have need of legal services, and perhaps a renewal of their executive team.

The “Denominator Effect” – as it pertains to the fall in equity portfolio value relative to real estate portfolio value – has destabilized the traditional asset weighting in investment portfolios. This appears to have constrained the domestic real estate investment activities of the major private pension funds. Some funds may consider a disposition of non-strategic elements in their portfolio as a means to re-balance their asset weighting.

The concurrent impact of face rate erosion; and social movement for environmentally efficient structures or the “Green Effect” will have a dual impact on asset retention decisions. The erosion of face rates may no longer justify the capital reinvestment to achieve a LEED’s standard, especially institutions that are driven by investment yield.

Life cycle obsolescence is a little known but important element of consideration when “buy and hold” portfolio strategists conduct their acquisition and disposition due-diligence. In the mid-1990’s, experts in the revaluation of commercial real estate claimed that more than fifty percent of Manhattan’s commercial real estate stock (much owned by pension funds) was reaching technical obsolesce. Most large American cities continue to face this same reality. I would expect assets that are reaching the limits of their life cycle and are slated for re-valuation to a LEEDS standard are ripe for acquisition by private equity funds and deep-pocketed interests.

In key markets throughout North America, erosion of commercial property values in this down cycle, combined with the need to revalue mid-life-cycle assets to a LEED’s standard offers a unique opportunity for the application of existing, and the aggregation of opportunistic capital into debt and equity funds.

Rutherford International has the ability to bring together the expertise for staffing and/or creating these funds. For further information on our real estate search services, please contact Forbes Rutherford.


Infrastructure and Public Private Partnerships:
Faced with increasing deficits, eroding tax revenues and concern over legal liability associated with catastrophic failure, governments have acquired a renewed sense of appreciation for the private sector role in delivering services and infrastructure to the public domain.

When we consider what’s happening in the United States, clearly Public Private Partnership has an important role to play in this current economic maelstrom we’re facing.

“US GDP contracted at an annualized rate of 6.1 percent during the first quarter, little improvement on the 6.3 percent fall in the last three months of 2008. US exports fell by 30 percent, the US Commerce Department reported. New US business investment, normally made when companies are planning production increases, tumbled by a record 37.9 percent in the first quarter. US capacity utilization is at a rock bottom 69.3 percent. In real economic terms, this amounts to almost one-third of all plants standing idle. The number of US jobs has fallen by 3.9 percent, exceeding the 3.2 percent decline in the 1981-82 recessions. The 15.4 percent fall in US industrial production is worse than in previous recessions.”
Bill Buckler, Privateer Economic Newsletter - May/09

"Public Private Partnerships and economic stimulus have become synonymous."

Rutherford International has access to a network of analysts and experts with experience in PPP endeavors throughout the industrialized world. We can help you structure your PPP initiative; or staff an existing project. For more information, contact Forbes Rutherford

Corporate Restructuring and Insolvency
There was a time when a country’s success was measured by the hard goods it produced, however “off-shoring”, “near-shoring”, predatory pricing, uncompetitive taxation, knowledge deficit, succession challenges and a cultural ethos of “entitlement” compounded by a malaise in visionary leadership to re-invest has all but contributed to the hollowing-out of key sectors in North America’s manufacturing industry

For example, California, Eastern Seaboard and Great Lake States and Province’s ignored the needs of their manufacturers – consumerism drove public policy - construction and rising home values were a Kafkaesque masquerade for economic vitality. “One can not build a sustainable economy on a housing boom” - that is the essential truism re-learned - the dislocation associated with the de-leveraging of the sub-prime and prime mortgage industry simply punctuates this tenet. Historically, "real estate has followed economic cycles not led the forefront"; however I believe it would be fair to suggest that this fundamental truism was lost on public policy makers during these past three years.

In all industry sectors, the business of business is in need of serious and sober introspection; governments need to set the rules and step aside. Manufacturing risk should be rewarded even celebrated; real risk and not contrived failure easily forgiven. These are fragile times – companies will restructure – industry sectors will consolidate – those who are resilient and agile will lead our economic recovery.

It’s during a recession that one prepares for recovery – this is the optimum time for Stakeholders to tweak their executive and managerial teams. I have a growing list of “Chief Restructuring Officers” and “Chief Financial Officers” that we are able to insert into and be effective immediately in a broad range of industry sectors.

Rutherford International has access to an international network of full-time and interim “Turnaround” executives. We would welcome the opportunity to assist you on files where this type of interim or permanent executive requirement is needed. We'll even leave a portion of our fee on the table in return for "prefs" or "warrants." For more information or to be considered for membership within our network of "turnaround" executives, please contact Forbes Rutherford.

Is The Non-Corporate Branded Managed Real Estate Services Network A Flawed Business Model?

Is The Non-Corporate Owned Managed Real Estate Network A Failed Business Model?

by Forbes J. Rutherford, Rutherford International

The following is a re-print of an article I wrote in 2009 predicting the erosion of the independent broker "managed network" business model. The article questioned whether the 'center' of the business structure could sustain itself financially and culturally into 2014. I'm interested in your comments.......

A review of Lipsey’s Top 20 List of Industrial, Commercial and Investment Brokers has a number of organizations which characterize themselves as a managed network of independent brokers and property service companies. These companies claim an active global network, and are knitted together by a central organizing entity that generally holds the global brand. Its mission of course is to facilitate interaction between network members at a global scale, however some confuse their raison d’être with the selling of licenses or franchise rights versus the fostering of client-focused excellence.

Whenever I’m asked to conduct an executive search for a franchiser, I generally ask the CEO if he or she is in the business of selling franchises or product/service. Invariably fifty percent of the response is “franchise rights.” I would submit that this percentage is no different with that of managed networks of independent brokers. In fact, many talk a good game (and may be generally sincere), however an easy way to determine their interest in transnational transactions and advisory services is by asking how many corporate staff are tasked with the mandate of fostering interaction among its membership. Most have very few, and in this period of economic turmoil the majority have laid off a large percentage of their network managers.

Real estate is local, however many brokers operate in the belief they must be aligned with an international brand in order to have credibility with national or international clients. There is some truth to this belief although only a small percentage of professionals within these brokerage organizations have any significant interest in transacting outside of their regions. It’s this orientation to parochialism that is the fundamental flaw in the independent broker network’s utility as a global service provider.

Some may consider this viewpoint as a harsh criticism, however few members of independent networks will deny that a vast majority of their network peers are interested in receiving network leads, but only a limited number actually push leads into their networks. This failure to foster cross-network activity is the bane of an independent network manager’s existence. “How does one correct a licensee’s non-participative network behavior especially if they’re paying their fees?” If you’re in the business of selling licenses, you don’t really care; you simply increase your license fee and rely less on percentage splits through network transactions.

Most members are purchasing, and many international brands are supplying their network licensees with the appearance of size with little underlying substance. It’s the “Deluder” leading the “Delusional.” Granted, it’s more than just letterhead marketing; for a fee, one receives a central website, a transaction management system, specialty councils of peers, competitive intelligence, market overviews and macro economic prognostications but generally after the fact and invariably advice denuded of reality.

Considering that license fees are ever increasing; and with a network transaction fee that is often ten percent – five taken from each member, one might question the value proposition these structures truly offer. The model is broken, it offers little that can’t be purchased or accessed on the street for considerably less.

The future is rapidly changing their business model. The application of technology through the advent of social communities and crowd-sourcing is changing the business model for managed networks.

Within the next five years as the world economy recovers, I suspect technology will expose the weakness of globalized real estate service companies that are built around managed networks of independent licensees. The core of this business model has a mushy center; it offers little that a competent "affinity business network" can't offer. Through an "ABN," brokers and individual agents will be able to widen their personal sphere of influence by reaching across branded platforms. Regardless of affiliation, they will be able to seek out and choose the best service providers within a given market to handle a client's account.

It’s with this expectation of the future that I foresee the advent of the “Un-managed Managed Network” where independent and forward thinking real estate brokers are able to breech the limitations of “closed ended” real estate networks; and interact or transact with peers of their choosing utilizing an amalgam of “best in class” web enabled tools.

"Top Tier" commercial real estate investment professionals (both intermediary and non-intermediary) will be able to interact cooperatively with each other in over 1000 different markets around the globe and publish their "Haves" and "Wants" within a closed cross-platform communications loop, or opt to list publicly to well over 100,000 transaction driven real estate professionals.

What does the future hold for a managed network of independent brokers?

One of eroding market coverage, a diminished client base, membership attrition and subjugation of their brands. I would submit that the owners of these organizations are not only whistling past the graveyard but also lack the foresight to even realize it.


To be connected to Forbes J. Rutherford via:
LinkedIn – go to: http://www.linkedin.com/in/rutherfordintl

Xing – go to: https://www.xing.com/profile/Forbes_Rutherford

What's Happening To My Little World?

Call from a friend:
We just had another client cancel one of their contracts for this year and my lay-off list is growing... What's happening to my little world??

I should've heeded your "doom 'n gloom" and taken off my rose-coloured glasses much sooner.

Forbes J. Rutherford:
Just a minute, I'm becoming optimistic that we'll see light by the end of third quarter in Canada - unemployment is 5 percentage points below the double digits of last recession and only 2 points above structural unemployment. The consumer hasn't completely stopped buying and might be experiencing some level of Obama led euphoria. It could be a "dead cat bounce" and everything will tip over the edge, but Receivers in perpetual recession prone Atlantic Canada aren't busy....YET......

You may be experiencing an "over reaction" by client's canceling projects, their Board is expecting cost reductions and can't reconcile cost/benefit of the output. It's an easy target...to not invest in one's corporate brand...and a silly response to a recession...as now is the time to increase brand visibility in preparation for the eventual recovery. However, in times such as these most executive teams become reactive, and the mantra is often "cut it and if we made a mistake, we'll cross that bridge when the realization of the mistake comes."

Every major recession has changed the economic culture and forced (to use an overworked phrase) a paradigm shift in the make-up of business organizations. For example, the 1983 recession eradicated any remaining vestige of the "company man" and the workers commitment to a single company for their working life.

The early 90's recession embraced youth at the expense of age and the importance of archived knowledge walking around the office.

This recession, regardless of Canada's financial services industry strength will generate (if it exceeds 18 months) a realization that the revered importance of the "financial sector" with its delusional cadre of Financial MBA's is made up of men and women with feet of clay; and that they actually have no idea how to create real value.

America's Joe Citizen's backlash, especially if Obama piles on with tax increases will rightly view these grasping architects of financial mismanagement as being for all their education nothing better than that of a used care salesman or a municipal politician. This recession has the potential of making it clear to all, that the levers of power are pulled by charlatans and that they can trust no one but their immediate friends and family.

A backlash would be a good thing, as clearly the people would realize that government is the responsibility of the people and not of the elites. But this is not likely to happen - the only paradigm shift out of this economic morass will be the disassembling of international corporations; and geographical regions of the world shifting into bastions of bilateral trading blocks. National and regional interests will be driven by access to energy, and in some cases...water.

A Fortress Asia and Fortress North America is likely to be the long-term outcome of the economic recovery; however China is a mercantialist free-booter - their economy is based on selling its production capacity externally. They don't have a domestic market and their burgeoning middle-class is dependent on foreign sales. They are sitting on a sea of foreign commercial paper, which may temper their actions - but expect China's Politbureau to externalize blame for their predicament if the recovery takes too long to arrive.

We'll have Fortress Europe but we're seeing signs of it turning on itself - there are two competing social cultures - Old Europe and its sense of entitlement, and the new democracies formed from the former Soviet Republics that don't take freedom for granted and were cashing in on easy credit to build their economies and become a bulwark for New Europe's northern borders. This is likely to implode, and we may well witness a reconfiguration back to the Old Europe, once they cast the New European democracies back into the demilitarized zone between Russia and NATO. This will be achieved by grinding their economies with Brussels sponsored regulatory friction. As Canada and the United States has learned in the Balkans and Afghanistan, Old Europe's commitment to alliances is as weak and as self-serving as their duplicity is strong.

Russia might want to get used to the idea of adopting Canada's industrial policy and become experts at being hewers of wood and drawers of water as commodities will be the only game the Oligarchs can play for the next ten years.

India has a domestic market large enough to sustain itself; however it will continue to commoditize knowledge management as it's prime export.

At the corporate level, I believe that knowledge based and service driven companies such as yours will likely restructure into fractured business units and individual skills, that orbit collaboratively around projects . Supported by the Internet, these business units will be held together by Account Executives and plug and play CRM technology platforms - only to spin off in different trajectories when the job is done. Business organizations have been moving in this direction since 2000 - this recession simply advances the "paradigm shift" more rapidly than most workers are able to fathom.

Change sucks! Rules of Engagement will shift. Perhaps a more flexible resource management strategy where twenty or thirty percent of a company's staff operate as "contractors" on specific projects that plug in and un-plug will be the way "creative and knowledge" based companies will be able to manage their overheads. The ability to marshal talent and proven skill will be critical.

Going forward, I suspect HR department's will be mandated to establish a "clearinghouse" of itinerant project specific contracted workers that can ramp up and ramp out under a very flexible arrangements.

Your little world my friend is simply a reflection of what's going on in the big world. Don't think in terms of hiring back staff if canceled projects are revived or new business landed - think in terms of creating a flexible supply of contracted staff - permanent employment going forward is measured in months.

Hard to fathom any optimism in these statements considering my Doomster views 18 months ago, but frankly.....

....in these times, the ability to adjust to change underpins one's sense of the future.

Right Sizing in Recessionary Times

REmatrix.com
A Portal To International Commercial Real Estate & Careers

REmatrix Interview Series with Forbes J. Rutherford, President of Rutherford International Executive Search Group Inc. on Right Sizing and Cost Management in Recessionary Times

REmatrix.com offers real estate professionals the means to communicate, learn, transact, invest, and expand their international network. REmatrix functions as a "one-stop aggregation of industry trends and transaction information." Our strategy for attracting lenders, advisors, buyers and sellers from around the world is to cater to individuals with similar professional interests, provide the best value for one's time on the Web, and ensure the scope of content and services is international.

December 27, 2008 – Toronto, Canada

Topic: Right Sizing In Recessionary Times

REmatrix.com www.rematrix.com

Is there a formulaic response to rightsizing in a recession?

Forbes Rutherford
Most companies, especially in real estate – whether it’s the manufacturing, servicing or transacting of real estate fail to recognize the hard reality that gravity does exist in finance and that market cycles by definition – do cycle. The failure to recognize this reality generally results in a reflexive management response, which often has the earmarks of a formulaic response.

To be frank, it depends on the leadership, the level of uncertainty relative to market circumstances and the degree of financial hemorrhaging. According to a Bain Consulting study as reported in the Harvard Business Review, there are three types of executives one might observe in the face of an impending recession. The first type was “over-confident and likely to under-respond; the second was “under-confident and likely to over-respond,” while the third type was likely to respond to an approaching recession in a “balanced” fashion.

REmatrix.com www.rematrix.com

How do you recognize the “over confident and under-responsive” executive?


Read the complete version of the interview at: http://rematrix.com/careers/careers_09sum-let-1.html