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Navigating the Perfect Storm

Al BeaudetteAs we bring 2008, and my tenure as Chairman, to a close, our industry and nation are faced with challenges that we couldn’t have predicted only a few short months ago. A serious credit crisis and an unstable economy have undoubtedly affected each of our businesses and our lives. This is likely unmatched to anything we could have anticipated, but there is hope on the horizon.

Industry leaders from around the globe joined NAIOP in Las Vegas for development ’08: the annual meeting for commercial real estate, this past October. During the conference, I was able to talk with many of you. During those conversations, two words were repeated countless times: hope and opportunity.

Each of you is looking for the same thing: opportunity for success that comes out of every one of these market corrections.

For those of you less than 35 years old, this may be the first downturn in your real estate career. For members with a long career history, we’ve been down this road before. We’ve learned to navigate these challenges and detect the openings for new business and partnerships.

During market conditions like we are facing today, what we come to depend on is optimism in tomorrow. We hope that the worst is ending, trust that there’s light at the end of the tunnel and anticipate new opportunities for our businesses to continue to grow, thrive and prosper.

From my perspective as Chairman, NAIOP has countless reasons to expect a good outcome to this market downturn. Our members are second-to-none. Let me share a true story that will explain why I have so much hope in our industry. Back in the early 1980s, Congress granted the savings and loan (S&L) industry new powers. Among others, these powers included lower reserve requirements and the ability to expand lending products and invest in real estate ventures. It wasn’t long before Congress tried to correct this mistake and tighten regulations, but for many S&Ls, it was too late.

You know the end of the story – in the late 1980s, the federal government had to step in and bail out the S&Ls by forming the Resolution Trust Corporation. It was charged with disposing of failed real estate assets and mortgages from the S&L industry. By the time it all came to an end, 1,043 S&Ls with more than $500 billion in assets failed costing the U.S. taxpayer more than $153 billion.

The conversations we are having today sound very similar to the ones we were having in 1990. It was the “perfect storm,” formed from an overbuilt real estate market, an economic downturn and rising number of foreclosures, all of which converged simultaneously, dramatically impacting the value of real estate.

Back in 1990, when the “perfect storm” was at its peak, a couple of young entrepreneurs were seeing their respective companies falter and transition into crisis modes. Rather than panic, these two – one with a brokerage background and one with a construction background – sat down with a pizza to mull over how they could improve their lots and capitalize upon all of the changes and uncertainties in the marketplace. What evolved from that evening was a business plan that was literally written on that pizza box.

Shortly thereafter, both left their respective companies and launched their new venture. They figured that, with their experience on the brokerage and development sides, they could help lenders reposition foreclosed real estate assets and prepare them for eventual sale. After serving as receivers on more than 200 individual properties, they never looked back.

cartoonOf course, this is the story of Phil Belling and Steve Layton of LBA Realty, today one of the largest and most respected development and investment companies with more than $3 billion in assets. At the same time that Belling and Layton were launching LBA, there were countless other pizza box business plans in the works. Change begets opportunity, and capitalizing upon change and uncertainty are the hallmarks of the successful real estate entrepreneur. We are now in that time. Here is one thing I can guarantee to each and every one of you: we can expect more real estate wealth created in the next several years than we have seen since 1990.

I challenge you to pull together your key executive teams – along with the keen input of the rising professionals in each of your organizations – and begin the brainstorming on how you’ll navigate this storm successfully.  Gather your team together, call the pizza guy and let the ideas begin to flow. There are countless ways to capitalize upon the times ahead, and I know some of you are already identifying your niche. I can assure you that if you make this effort we will be talking about the successes some of you are having this time, next year.

In Closing
Thank you for giving me the opportunity to serve as your Chairman this past year. I truly enjoyed the experience and the opportunity to visit with many of you in your local chapters. My only regret is that it was not possible to visit all of you. It is an honor and a privilege to pass the gavel to Douglas Howe, CEO of Touchstone Corporation. Douglas’ energy, dedication and enthusiasm are contagious, and I am sure he will lead the organization to new levels in the coming year.

Alan J. Beaudette
2008 NAIOP Chairman of the Board

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