Catastrophe, crisis, and failure: Analyzing, acting and preventing - by Brett Pelletier

Mark Twain is quoted as saying “October: This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.”  As the leaves begin changing, it’s a good time to pause and evaluate the market and the landscape ahead. While stock speculation is widely considered an esoteric form of investing and the risks are generally understood; real estate transactions and markets are unique, discrete, and generally dissimilar and therefore require a thorough and fundamental understanding of the constituent components of the transaction or market. Counseling market participants with varying levels of sophistication means understanding the needs of each client and modulating your counsel in order to deliver conclusions and results that make sense and solve the problem.   

I just started reading a book cataloging the failure of the Bank of New England, which predates my time in the industry by a decade or more, but is likely still very fresh in the minds of many of my colleagues. I’m never surprised how analogous and comparable the themes of catastrophe, crisis, and failure are. While each event is unique, each generally has a distinct commonality with another. There were signs, there were warnings, there were opportunities to right the ship and ultimately the unraveling couldn’t be stopped. Participants in the real estate markets are especially well positioned to recall and appreciate a long history of major economic or financial events that had direct impact on the ground. The bankruptcy of Bank of New England in 1991, and more broadly the S&L Crisis that surrounded it, the fall of Long Term Capital Management in 1998, and the Financial Crisis of 2007-2008 (Great Recession) are three major economic events that had measurable and lasting impact on markets, and all occurred within approximately 17 years.   

As real estate professionals counseling a wide variety of clients, we must look over our shoulders and into the future, no simple feat. All participants, from start to finish, need to be diligent, responsible, and thoughtful and the counselor needs to herd cats and wrangle unruly constituencies to produce credible and substantive results. As of 2017, we have the ‘benefit’ of having lived through local, national, and global crises with remarkable frequency and remarkable severity. We can, and should, learn from these events as they inform our view of the future landscape in order to best serve our clients and reduce risk, uncertainty, and volatility.  

Community organizations are necessarily becoming increasingly more powerful and influential in a wide variety of real estate transactions. Public Private Partnership (P3) was once a term of the art in select circles, but is now on the tip of the tongue of every selectman, community organizer, and non-profit client. Understanding how to navigate the minefield is the best way to make it to the other side, and clients rely on our counsel and nimbleness to get there. Real estate and land-use challenges facing these groups are very real and very complex. Organizing and supporting divergent groups that often include local residents, taxpayers, and beneficiaries of mission-based organizations takes special care and expertise. Specialized skills and understanding are essential when advising clients with such needs and expectations in order to deliver relevant and substantive assignment conclusions that help the organization solve problems and achieve goals. That often includes identifying alliances within the real estate community that provide low- or no-cost financing, identifying and mitigating risks, identifying partners, and resources available to ensure the client is as well informed as possible. Helping clients make informed and sound decisions and solve their real estate problems is the goal.

There is a fine line between perceived competence and talking over your client’s head. We make our clients partners in problem solving and move alongside them through the engagement. It can be easy for some to feel like they are shouting into a hole and it is our job to make sure they can get there with us. The markets will certainly be moving soon. The FED interest rate hikes in the next six months will surely cause some fuss and the impacts of their balance sheet reduction measures are still looming. Boston continues to be an exciting commercial real estate market and it helps to have good counsel to navigate through the deal. Call anytime.

Brett Pelletier is chief operating officer with Kirk & Company, Real Estate Counselors, Boston.