It’s interesting to note that the industrial sector, long considered a sort of stepchild to sexier product types like office, retail, mixed-use and multifamily, has become sexy indeed with the upheavals caused by COVID-19.
Much the same can be said of property management. Long considered the ignored sibling of disciplines that garnered flashier headlines, the profession began to gain recognition when brokerage firms realized decades ago that a single transactional focus doesn’t cut it when the economy slips. They adopted management disciplines to keep their ships afloat, morphing into “full-service real estate firms.”
Now, in recent meetings with the heads of some of the largest full-service firms in North America, we hear of plans to diversify even more. Those with a multifamily focus, for instance, are branching out into commercial, and vice versa. It’s a smart play, beyond giving further credence to the power of a solid property management strategy.
“In today’s environment, diversification is key,” says Bill Levy, CPM, the Madison, Wis.-based CEO of BMOC, Inc. The bulk of Bill’s business is student housing. But that’s not the sole focus of the firm.
“Probably 70 percent is student housing in the Division I and II technical colleges and private colleges. But we also manage conventional apartment buildings and workforce housing, which is the newest development in our company.”
He explains that while student housing took an obvious hit during the lockdown and quarantining years of COVID-19, workforce housing has been a growing industry, gathering interested investors as well as developers.
From the recent depths of the COVID-19 downturn, we saw firsthand the dark side of asset and geographic specialization. However, much like BMOC, our firm remained fairly insulated from the full impact of the slump, with certain sectors (multifamily, grocery-anchored retail and our small industrial portfolio, for instance) counterbalancing the hit taken by our student housing or mixed-use retail. On the other hand, with a Northwestern geographic range, we’ve rolled the dice and bet against such region-specific issues as weather (read: wildfires) and state-to-state differences in handling the eviction moratorium.
Let’s take a look at geographic differences. The global pandemic didn’t hit all regions equally, and neither has the recovery. In conversations with my friend and last year’s IREM president, Chip Watts, CPM, I learned that people are moving to the Southeast in droves from states like California, fleeing issues such as affordability, long commutes or the heightened COVID restrictions that come with overpopulation. So, one region’s loss becomes another’s gain.
Not surprisingly, post-pandemic office occupancy rates also vary by region. Boston reportedly enjoys a single-digit vacancy, compared with New York City, where the vacancy rate nearly doubles that.
The ebb and flow of every geography and asset sector is about the strongest argument for diversification. Strict specialization, by comparison, is akin to traveling a very narrow lane, the consequences of which became clear over the past two years. We must also remember the power of relationships. Much like many real estate firms, your clients are also branching out. If we can’t service those clients, they’ll simply go to someone who can. Clearly, there’s market demand for diversification.
Now, let’s make it clear that specialization holds an important industry niche. Every discipline has so many nooks and crannies to master that specialty is clearly called for. Specialization also provides a strong competitive edge, one that speaks to expertise and focus. There’s a high bar to learning all there is to know about any market sector.
In that sense, as Bill states, “Specialization gives property management companies an upper hand.” But he makes an important point of distinction between pure specialization and specializing within a broader organizational context. From a core asset focus, a forward-thinking organization can “branch out and modify, taking the strengths of student housing, for instance, and developing them into other strengths, like class-A office or workforce or low-income housing.” Many of the same best practices found in one, he says, apply fully to other areas of focus. This strategy has “given us the ability to cross-pollinate into other institutional types of investments, building on our history of success.”
Let me put in a plug for IREM, with nearly 200 courses covering a range of disciplines–beyond the certification tracks. We offer courses for commercial, multifamily, student housing and retail disciplines, as well as career paths like human resources and finance. Name your direction and there’s a track for that.
The diversity of these courses works just as well for the firm looking to cast a wider net as for the specialist looking to drill down into their chosen specialty. Building specialties within a firm looking for broader diversification not only provides greater career choices for team members, but it also creates a degree of immunity from market vagaries.
Bill agrees: “Diversification of our portfolio gives our employees the opportunity to learn many different products.” His firm offers an IREM educational course leading to ARM (Accredited Residential Manager) certification for all employees during their first year at the firm. It provides “a baseline of property management for all my employees, no matter what they manage.”
My advice is to follow the example of full-service real estate firms. Before the next challenge to the industry’s upward trajectory hits, opportunities for stabilization and growth await those willing to step out from their comfort zones. Now is the time.
Barry Blanton, CPM, is the 2022 President of IREM. In addition, he serves as chief problem solver and a founding principal of Seattle-based Blanton Turner.