July 7, 2020
With state economies slowly reopening, people are cautiously embracing optimism as they venture back to work and stores while navigating through an unfamiliar environment. Though we may be heading back to offices, nothing about our often-quipped “new normal” feels comfortable. Businesses are battered; the economy is still grappling with unprecedented levels of unemployment. This has created rippling effects on all sectors of the economy, even the once-booming real estate industry. CEO of Rakow Commercial Realty Group, David Richman, recently appeared on the Risk-Free Podcast headed by Ian Linder. Each episode talks with business leaders to learn more about managing the risks that pose the greatest danger to their businesses.
Rakow is a full service commercial real estate firm, specializing in office, medical, retail, and industrial space. For over 30 years now, they have represented tenants, buyers, owners, and sellers of commercial real estate services. They have locations throughout the tri-state, including a New York office that serves Westchester, Rockland, and Putnam Counties, an office in Connecticut that serves Fairfield County, and a New Jersey office that serves Bergan County. Not only does Rakow assist their clients with office space leasing, buying, and selling commercial real estate, they also assist them with renegotiating current leases to protect their interests every step of the way.
Here’s what David has to say about realty, risk, and what business owners can do to protect themselves as the COVID-19 pandemic continues.
It can be tempting for business owners to fixate on the negative aspects of social distancing and the impact it has had on their operations. When it all feels too much to bear, try thinking about something positive that has come from the months of social distancing and isolation. For Richman, spending time with family and being grateful for his good health has helped him through some of the ramifications that come with social distancing.
At the same time, Richman, who has been with Rakow for 20 years and made his way from broker to CEO, acknowledges that this kind of event can be hard to prepare for and even harder to weather. The financial crisis of 2008 gave him some perspective of how a business might look amid COVID-19:
“[In 2008], I’d say probably about 75% of the contracts we had out, ready to get signed, just rescinded and disappeared. It was a tough time. But, moving forward, we were able to sustain, and I think that also offers a new level of entrepreneurship with people going out and starting with their own businesses and firms.”
While tough times present unquestionable challenges, they also create opportunities. By examining your options and seeing how your business might adapt to the challenges ahead, you can position your business as one that evolves rather than one that fades away into obscurity.
Research supports this notion. An article published in the Harvard Business Review studies businesses in the recessions of 1980, 1990, and 2000. Of 4700 companies studied, 17% fared poorly: they were acquired, went private, or filed for bankruptcy. Interestingly, 9% of companies flourished, outpacing competitors by at least 10% in sales and profit. Similar studies of the Great Recession have found similar results. The secret? Working through contingency plans and alternative scenarios. Don’t fall behind through a recession and hope for the best; think about how you can come out stronger.
This research and other case studies point to some interesting tactics that companies leverage to survive, including:
Consider how well your business is prepared for a sustained economic decline. Find the opportunities available, make wise investments, and consider making your decision-making process more collaborative to help your business thrive.
If there is one trend that Richman can point to that fundamentally changed commercial real estate, it is both technology and social media. Though technology has been fundamental to real estate operations for some time – search systems like MLS and code star have driven the industry forward and changed the searching process – other tools have allowed Rakow Realty to keep operations running smoothly, even as the economy shut down. Devices like virtual walkthroughs, video conferencing, and high-resolution digital photos have allowed people to see the property and make quick, informed decisions, even as they remained sequestered in their homes. Richman says:
“In our business, it’s like ping pong. When you have the deal float going, the sooner you can ping and pong it back, the quicker the deal gets done. It’s all about keeping up the momentum, so technology has been great for that.”
At the same time, don’t discount the power of connecting with individuals face-to-face and knowing your target audience. For example, Millennials have readily adapted to post-pandemic life. A recent study of pandemic spending found that Millennials were the most likely to reduce their in-store shopping and move their purchases entirely online. In fact, 39% of Millennials said they are shopping much less frequently in stores compared to 21% across all age groups. Understanding how your buyer’s behaviors may change in the coming months is essential to mitigating the risks that the pandemic could pose to your business.
Richman, however, also cautions against moving too many of your interactions online. There is no replacement for connecting with people face-to-face, especially in a connection-heavy industry like real estate. Growing trust and empathy requires personal interaction – something you cannot replicate over social media or other digital platforms. Knowing your target audience and the best way to connect with them is key.
Richman says that Rakow Realty moved operations online pretty seamlessly when the pandemic kept everyone indoors. His team has been able to stay connected daily, and they have been hard at work reinforcing relationships with clients and seeing how they can help. They have also been hard at work building future pipelines so that, when the time comes, they can begin engaging in a more traditional format.
When asked about resuming normal work habits, Richman was more cautious. He noted that some things, like increased virtual meetings and property tours, are likely here to stay. For example, some clients may have compromised immune systems or other risk factors that could keep them isolated for the foreseeable future. Virtual and online viewing options allow them the flexibility to make decisions without compromising their health. In that sense, the COVID-19 pandemic has highlighted opportunities for businesses to reach more customers, including those who may have been isolated or had limited mobility before the pandemic began.
COVID-19 will also likely affect the modern workspace, including how employees function. Some may choose to keep working from home amid pandemic concerns; other businesses will consider a hybrid work structure to limit the number of employees in the office at a given time. One interesting aspect to consider, however, is how the post-pandemic world will affect a collaborative workspace.
It’s no secret that workspaces have been evolving to include more common areas. Tech companies like Google and Facebook have been leading the charge with additions like upscale cafeterias, childcare, exercise equipment, and living-room-style workspaces. With social distancing recommendations likely extending into 2021 or beyond, is it possible that businesses will revert to the cubicle and private office configurations? Will that affect collaboration and camaraderie? Richman says:
“I do see that is probably at least the initial knee jerk reaction and that probably will start to happen in the short term.”
He elaborates, however, and says that people enjoy working in a collaborative environment. With social distancing, some common sense, and a redesign on the common workspace, a collaborative work environment is still feasible. Businesses should think creatively about how they can reap the benefits of shared workspaces while keeping their employees safe.
We have been in a recession since February, so it is likely that you already have an idea of how a downturn will affect your business. Globally, analysts have predicted some trends resulting from the COVID-19 pandemic:
When asked how he thinks COVID-19 will affect the commercial real estate industry long-term, Richman acknowledged the difficulty but remained cautiously optimistic. He noted that during this time of financial uncertainty, they have seen their fair share of deals fall through. At the same time, the pandemic has increased the resolve of some of his other clients, leading to long-term transactions. Like every other industry, Richman says his company is taking things day-to-day and month-to-month. He acknowledges sweeping and long-term changes, like a lot more virtual events and collaboration. Real estate investors continue to shy away from investing and tenants face financial instability; this trend could continue into the near-by future.
For any business, the short-term projections could be grim. It is easy to become overwhelmed by the economic projections over the coming months, but even the brightest economic forecasters can’t provide an accurate projection of what the economy or your industry will look like in the next two to five years. Richman suggests focusing on how your business can adapt, the opportunities this climate creates, and the contingency plans you can develop to help you weather the storm.
Commercial real estate has been inevitably affected by COVID-19. Businesses are struggling and some are unable to continue their leases without revenue. Investment in multi-family real estate is declining since many tenants are grappling with increased financial instability. When asked about Rakow Realty, Richman noted that their main job was to be an advocate for the tenant, buyer, or owner of the commercial property. As the COVID-19 pandemic continues, they aim to help their tenants decide if they want to stay where they are or relocate somewhere better for their business model.
In general, businesses should adopt a flexible mindset as the pandemic continues to wreak havoc on the economy. It is impossible to accurately predict what the next few months or years will hold, so only focus on the aspects you can control. Consider the following:
In line with that thinking, Richman had one more piece of advice to offer:
“Yes, we’re dying to get back to normal life, but in due time. [The] most important [thing] is that we’re going to be safe and healthy out there.”
Though many aspects of business remain uncertain, real estate is rebounding, and Richman wants all clients to feel empowered and confident in their choices. As a full advocacy and representation firm for buyers, tenants, and investors, RakowGroup is committed to helping the client find the most favorable terms in their transactions.
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