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.


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