Navigating Through Turbulent Times (JPM)

Seasoned CPM Members See Silver Lining in Stressed Economy

by Janice Rosenberg

�The following is an excerpt from the�Jan/Feb 2009 issue (Volume 74, Number 1) of JPM�, Journal of Property Management.

The current downturn has not taken IREM Certified Property Managers (CPMs) by surprise. They know that real estate declines are cyclical. While economists predict a continuing economic downturn, experienced property managers see plenty of business opportunities on the horizon.

"We're entering a time when the need is going to be there for the top flight professional CPM," said Robert B. Toothaker, CPM, chairman, CB Richard Ellis, AMO�, in South Bend, Ind. "The smart lenders and owners are going to be looking for experienced CPMs who understand what they need to do to reposition a property or to save a property for the future."

J. Benjamin McGrew, CPM, president of MANAGEWEST, Inc. in Carmichael, Calif., agrees and understands the value of his IREM education and training to assist owners of troubled properties during these challenging times.

"We�re seeing an unprecedented amount of properties hitting the market at the same time, McGrew said.

McGrew stressed that owners need to hire someone who has the credentials�a CPM or AMO designation�in order to many of the properties around.

What makes a CPM or AMO firm stand out from the rest? Richard Muhlebach, CPM, and a real estate consultant in Woodinville, Wash., said that because CPMs are required to create a business plan�known as a management plan to those educated through IREM�in order to receive their CPM designation, they are trained to create these plans for every property they manage. This allows CPMs to show both their analytical and creative talents to owners when hired to manage a troubled property.

Recognizing Murky Waters

For most in the real estate business, knowing some of the early signs of an economic shift is essential to taking the appropriate actions at the right time.

�When the real estate market is booming, people in the real estate industry think it will never end,� Muhlebach, said. �When they are suffering, people think they will suffer a lot longer than they normally do. But when you�re in real estate as a CPM, you know it�s going to be a cycle. The challenge is in anticipating the cycle.�

Experienced CPMs were alert to early indicators of the current decline. For McGrew, those indicators included calls from attorneys asking that his company serve as a receiver for troubled properties. As a result of this increased business, since February 2008, McGrew and his employees have worked six-day weeks, proving their worth as CPMs inside receivership and bankruptcy cases.

McGrew viewed the reduction of bank credit lines to basic consumers as a further indicator of difficult times ahead. Having worked as a real estate insolvency practitioner, he dusted off his law books so that he would be ready for new business that was sure to follow.

�This time around it�s the housing market that�s serving as the downturn�s leading edge,� McGrew said. �Retail follows rooftops, which means that if the housing industry stops, the unanchored strip centers are next, followed by office buildings and then other types of commercial industry.�

Indicators vary with geography, often depending on the job market in a particular area. For example, for a period of time in advance of the current decline, the economy in eastern Michigan had been weak due to downturns in the auto industry exacerbated by the rise in gasoline prices, Toothaker said.

Similarly, 18 months ago, as gas prices rose, Toothaker saw the RV and manufactured home industry in northern Indiana begin to decline. He viewed this as a red flag signaling difficult economic times ahead, for both the region and the nation.

A decline in the Florida condo market served as another early warning sign for Toothaker.

�We were invited to bid on many development properties that were in trouble because they weren�t selling, and now units that were completed �but not sold�were reverting to apartments, giving us mixed properties we were trying to manage,� Toothaker said.

Barbara Holland, president of H&L Realty and Management Co., Las Vegas viewed downturns in the local housing market in 2007 as likely indicators of trouble ahead. With that in mind, in the last quarter of 2007 her company expanded its market survey, visiting every apartment community in a wide geographic sweep.

�We created flyers to market our strengths and target these properties,� Holland said. �We spent more time on leasing and marketing programs, and visited our onsite managers on a regular basis.�

Holland�s concerns were well founded. In the first three months of 2008, more than 35,000 people in the Las Vegas construction industry lost their jobs. Work at some large scale building sites has ceased and most likely will not resume until 2010. Major hotels are also laying off employees. Many workers have moved out of state, or will move, leaving behind empty housing units.

The full article is available as an online exclusive in the Jan/Feb 2008 JPM� issue.

IREM Members have free access to the JPM� online archives and the �Online Exclusives,� articles that are only available on the IREM Web site. Non-members can subscribe to JPM� at www.irem.org/jpm.