Historically, commercial real estate markets follow residential. However, that’s not currently the case in Florida. While there is excess inventory in housing, the commercial market has remained steady.
“The slowdown in the residential market is really just a readjustment to normalcy,” says Tom Bible, vice president of operations at Colliers Arnold, Tampa. “We had an extremely active, investor-driven market that artificially inflated demand. This caused builders to step up the supply side of the equation, resulting in an 11- to 12-month supply of housing. A normal balanced market is a six-month supply. So with demand remaining constant as all true indicators show and new construction on hold for the moment, the market should readjust in six to seven months.”
Bible adds that over the last 18 months, there was very little commercial speculative building that would create an excess in inventory. “Therefore, prices and investor activity are holding ground,” he says.
Smart Business asked Bible why he thinks the outlook for commercial real estate in Florida will remain positive.
Discuss the outlook for Florida’s real estate market over the next decade.
With baby boomers approaching retirement and the appeal of Florida’s climate and lifestyle, we predict the state to continue its growth well into the next decade with a possible shift in demographics as land scarcity drives prices further north, especially along the coastline.
The current unemployment level in the Tampa Bay area and the state of Florida is 3.1 percent, compared to the national average of 4.1 percent. Our active work force, growing population and increase in technology, medical and professional services should continue to fuel demand.
As people continue to migrate to the Southeast, Florida’s retail and professional services markets will continue to grow to serve them, and the work force that fills that demand will boost Florida’s population further, continuing the demand for housing of all price ranges. Distribution and warehousing naturally follow, and so continues the relationship between commercial and residential real estate. Both markets depend upon one another but do not necessarily follow the same trends when the market is influenced by unnatural demand stimulus, such as it was with the investor-driven boom in residential housing.
Is real estate investment still an attractive alternative to the stock market’s volatility?
Yes. And due to Florida’s inherent land scarcity, values will continue to rise well into the future. We still remain a value as compared to other markets, such as California, New York, D.C. and Atlanta.
Ever since Sept. 11, news developments are constantly affecting the stock market. That’s not the case with real estate. When you look at long-term investments even with Florida’s insurance and property tax issues real estate is still a bargain and a good investment.
What are the biggest challenges in Florida’s real estate market?
Property insurance and tax rates are the primary concern in both the residential and commercial markets. Insurance rates have risen dramatically over the last two years, especially in certain areas along the coasts. Simply put, Florida needs more competition in the insurance arena. There are many ideas being explored, such as investor cooperatives and increased equity positions, and some investors are beginning to self-insure. Lee Arnold is very involved in a state council currently addressing the issue.
As for property tax, you experience increases any time there is a spike in the demand curve. There are fixed-income homeowners here who can no longer afford their property tax bill because their home’s value has risen so dramatically. These homeowners may have to sell their homes and leave, as builders convert older properties into higher-value homes to attract the many wealthy baby boomers migrating to Florida. Many options are being explored statewide to mitigate the impact of property tax spikes on Floridians.
How should commercial investors choose a brokerage firm?
When looking for professional guidance in either market, seek out the counsel of a specialist in that business line. The increased number of residential agents practicing commercial brokerage in the last two years also added to the investment frenzy and over-inflated values, particularly in the multi-family and local investor-controlled retail property markets. Many investors over the last year were left holding the bag when their full-service agent in a residential shop decided not to play in that field anymore. Ask for their rsum and check references to ensure you are working with a commercial specialist.
TOM BIBLE is vice president of operations for Colliers Arnold, Tampa. Reach him at firstname.lastname@example.org or (813) 205-9497.
When you are constantly pulled in many different directions, being the boss can be painful.
Tony Holcombe has found that communication is one of the cures, and he tries to divide his time in thirds. The president and CEO of Syniverse Technologies Inc., a provider of technology services to wireless telecommunications companies, makes it a priority to spend equal time with employees, customers and investors.
Holcombe keeps in contact with investors to answers questions, and he holds informational meetings with employees.
“We do small group lunch-and-learn meetings,” he says. “We have a small group of employees, without managers, to have a free exchange of information with me.”
Holcombe also sits down with customers to achieve a personal level of communication. “It’s important for me to get a lot of face time with customers to see what customers are thinking, what they like about us and what they don’t like about us,” he says.“More importantly, where are they going with their business, so we understand what we need to do to support them.”
Holcombe has been at the helm of Syniverse since early 2006 and has been on the board of directors since 2003. Previously, he was president of Emdeon Corp., formerlyWebMD, and president of Emdeon Business Services.
Throughout his career, Holcombe has relied not only on communication but also on employee empowerment, finding the right people and acquisitions to drive success.
With 1,000 employees, Holcombe realizes he couldn’t do his job effectively if he was micromanaging.
“You really have to build a team who are philosophically in line with where you want to take the company and understand how to deliver results against key objectives,”he says. “Then you have to let those people go do their job.”
Holcombe says he is very results-driven and not so concerned about the activities that lead to those results. Once an agreement is made on the target results, Holcombehands it off to the management team. He then expects managers to hand it off to their teams, and if there aren’t results, Holcombe gets involved.
“I really try to give them the key objectives and let them get it done,” he says.
Holcombe is instituting Six Sigma at Syniverse, which ties directly to employee empowerment because everyone has a part in finding a solution, which keep them involvedand up-to-date.
A management team identifies areas where there is potential for better efficiency or better productivity. The team leader, or black belt, goes to those areas and talks topeople who work in that process about what doesn’t work well.
“Through statistical analysis, we will be able to find where the problems are associated with that particular process,” he says. “The black belt will present some solutions back to the team, and the team will help the black belt to find what will work. Then the team and black belt will come back to senior management and say, ‘Hereis the problem we have identified, and here is the solution. We either need resources or capital or a change in process to implement it,’ and we will sign off on it.”
At a previous company, Holcombe saw firsthand the power of empowering employees to find solutions when a problem arose with an automated call directory system.After the system was installed, the number of calls handled by a human increased, defeating the purpose of the system.
Using Six Sigma, a black-belt team and employees of the call unit jumped on the problem and discovered the system was installed improperly, with a key directionalstep missing.
“One of the really exciting things is you not only help employees solve problems they deal with day in and day out, but they actually come up with the solution,” hesays. “They own the solution at their level, and that is a tremendously powerful concept. Not only did we get rid of the increased calls, but we got rid of the number ofcalls we thought we were going to have to handle manually, anyway.”
Finding the right people
Syniverse’s revenue was $341 million in 2005, and the company is looking to increase that with growth opportunities through the Asia Pacific and European marketplaces.Two years ago, succeeding internationally was much tougher because Syniverse lacked brand recognition. That problem was slowly solved as the company built new business relationships outside of the United States.
Holcombe says succeeding internationally comes from having the right people working for you.
“You’re constantly looking for people,” he says. “If you had an entire team in place and you didn’t want to hire any new people, you’d still be looking for new people. It’s hardto find the top people because they are in demand.
“When you get ahold of a person, you work hard to get them on board and sell them your story. Basically, court them to come work for you and put them in a place they cansucceed.”
Internationally, Syniverse hired local people who had industry expertise and good contacts and who understood their regions. That paid off as Syniverse went from having zero market share in Europe to about 25 percent over a two-year period.
“We invested for the long term, and we waited a couple of years for all that to play out,” he says.
Growth through acquisitions
One way to achieve rapid growth is through acquisitions. But the companies have to be methodically chosen, and the integration has to be handled with care.
If a company is to be acquired by Syniverse, it must meet five criteria: It must have the ability to extend the range and scope of services offered; it must expand and leveragethe customer base; it must increase profitability; it must improve strategic positioning; and it must allow Syniverse to enter new markets and increase the scale of business.Currently, Syniverse is focused on acquiring technology-based companies that can provide products and services to customers not already in the company’s portfolio.
“What we are looking for are companies that have leading-edge-type technology and services that we can not only take and develop, but sell on a worldwide basis wheremaybe we didn’t have the reach to get into a world wide marketplace,” he says.
Holcombe says the company also keeps its eye on competitors that exit the industry.
“There, what we are acquiring is customers,” he says. “We want to bring those customers over to our platform, our services, and build a strong, long-term relationship withthem.”
At that point, Holcombe says it’s important to understand what the customer wants.
“It’s really important you sit down with the customer and go, ‘What are the things that cause you pain? What are the areas where you are trying to control your cost or increaseyour ability to increase your revenue?’ You have to listen very carefully to what they are telling you. Then you have to create a solution for them.”
Holcombe says that once you get past questioning whether you have a good product set or a good financial deal, the thing that can make or break the success of a deal is thecultural integration component.
“It’s something that I, as all CEOs do, have struggled with,” he says. “When we acquire somebody, we want to get to know the management team of the company and the culture of the company pretty intimately.”
Syniverse has weekly integration meetings chaired by Holcombe, at which the company walks through the issues between Syniverse’s people and the people of the ac quiredcompany.
"We have laid out plans, so we are checking off against that,” he says. “We are trying to make sure if there are issues, we deal with it.”
Syniverse recently acquired a company in Hong Kong, and Holcombe spent time there with its senior managers to understand how they work. He says it’s important to spendtime in the offices of the acquired company to answer questions and show support. And potential problems should be addressed immediately.
“When you close that acquisition, my approach has been you really selectively put the pieces of the companies together where it makes sense, and really build some wallsaround areas where you can have some cultural clashes,” he says.
Holcombe wants to leverage the Hong Kong-based company’s development capabilities for product sets in a specific marketplace.
“We build some walls around them and make them more of the development engine for us because that is where their expertise is,” he says. “Rather than us coming in andtelling them how to do things, they’re going to tell us how to do things. We leverage their strengths and give them a bigger role and a bigger marketplace to play. That helpsthem feel like, ‘There is no one here to pound me to tell me how to do stuff.’”
As far as branding acquired companies, Holcombe said that’s decided on an individual basis. The company in Hong Kong will keep its brand but be branded a division ofSyniverse. Time will determine what brand is most advantageous based on what the customer wants to see.
“It’s what is going to give us the best marketplace presence and the best expectation factor from the customer base,” he says.
HOW TO REACH: Syniverse Technologies Inc., (813) 637-5000 or www.syniverse.com
For years, Tony Leung has taken a proactive, thorough approach to safety and cleanliness at Sanwa Growers Inc. Leung, president of the $85 million, 230-employee produce company, says being proactive in business may cost money up front, but ultimately it benefits the company. Such was the case with Sanwa and the E. coli contamination of spinach this fall. While years of taking more thorough measures initially cost Leung money, he was confident his product was safe, making the extra money spent well worth it. Smart Business spoke to Leung about how he grows his company, promotes from within and finds balance.
Prepare for growth. Growing fast is not a problem; it’s not being ready for it. When you try to grow in my business, it’s easy to buy or rent a new warehouse. But to get a number of experienced personnel in the new facility in a short period of time is very difficult.
The business is there, but you do not have the support team to manage it. In the past, I did the growth first. Sometimes it can be very painful. The first few years are not profitable because you do not have the right people and right staff.
For example, I opened a farm in 1992 or 1993 in North Carolina, and it was about 500 acres. We were also farming 2,000 acres in Ruskin, Fla. My problem was we did not have enough personnel. We were spread too thin.
The operation, after five years, was not profitable, and we lost money. We decided to close that because we did not understand the area, the weather or the timing. The next time around, I was a little bit smarter and made sure those were things I looked into a little bit further. When I opened the next location, I took more time to calculate all the risks.
We now try to hire the management first and have them trained so they know exactly what we expect and how we operate before we find a location. All the managers that we have were part of the company. We move them up and train them as a manager.
Once (we) have the personnel stable, then we increase our capacity, which increases our infrastructure. Then build the market share. Once you have your bigger infrastructure, you increase the market share to the full capacity.
You have a team of people that are aggressive who will go out and get you market share and more of a customer base. Then you go back to the first step and increase your personnel. You repeat it over and over again.
Retain employees for a productive future. This is very important in our business. It’s a very basic business, buying and selling. We really require people to stay a long time to do a good job and identify our customers’ needs. If they stay two, three, four or five years, their later years will be the productive part (for) the company.
Pay is obviously important. We have an incentive program. We have bonuses and profit sharing. They know they will be rewarded on their performance. That is very important. When they do a good job, they know what their return is on their good performance.
However, money is not everything. When you work in an office you don’t like, it’s more painful than the monetary compensation for the long term. It is really important when you get up in the morning you look forward to going to work, instead of not feeling like going in because it is not pleasant.
Find balance. Since I delegate the work to my employees, they know not to bother me at home or on my cell phone when I’m not in the office. I don’t work weekends. I dedicate that time to my children and my wife.
It’s very difficult. I’ve been doing this for almost 30 years, and a few years back I decided to cut down my working hours. It feels a little bit uneasy, but when I start looking at my numbers, that’s where it has been improving.
The less I am involved, the better the numbers turn out. The employees know this is their company, and they are the ones who make sure they are keeping their jobs. I’m not the one keeping their job.
Understand your industry. I read a lot of the trade magazines. I get in touch with the people in the industry. I don’t get involved with the day-to-day operation, but I do get involved in the industry.
The support team is important because I am not doing their work. I only give them the idea, and then they have to perform.
The day-to-day operations are very routine, and my people can handle it a lot better than I can. As far as the trend and the future of the industry, I think I understand it better than my employees do. That’s why I give them ideas to change the company to what the trends call for.
Trust employees to carry out the organization’s goals. I’m setting those goals. They are the ones who find a way to achieve them. We go back to the first phase of what we do.
I am going to assess my infrastructure and capacity. If I see there is only 80 percent capacity, then I insist there will be growth next year. Now, if it’s my assessment that my infrastructure is not able to handle more growth, then I will ask for an increase in profitability. Not necessarily growing in revenue, but growing in profitability, so next year I can add on to the infrastructure.
You have to trust your employees. We have multiple locations and we don’t have a very advanced system to keep track of all the activity. So we build it on trust. I trust everybody until they prove otherwise.
HOW TO REACH: Sanwa Growers Inc., (813) 642-5159
Most merger and acquisition deals (M&A) start with a letter of intent, with one party (usually the buyer) submitting its proposal to the other, to lie down the foundation of the transaction. Letters of intent are generally short and informal, and, accordingly, often are drafted and negotiated directly by the principals to the transaction. However, parties would be well-served to consult their lawyers prior to executing the letter.
“All too often, clients give up significant negotiating leverage by signing a letter of intent without running it by their lawyer,” says Julio C. Esquivel, a partner at Shumaker, Loop & Kendrick LLP.
“These miscalculations can often complicate and prolong negotiations and sometimes lead to the failure of the transaction or even to litigation.”
Smart Business talked to Esquivel about the importance of the letter of intent and how it can most effectively be used in M&A transactions.
What is the purpose of the letter of intent?
The letter of intent memorializes the preliminary agreement of the principals and in that fashion allows them to take their negotiations to the next level. It does so by not only summarizing the parameters of the proposed transaction, such as price and closing conditions, but also by setting forth certain safeguards that promote continued dialogue such as nondisclosure and no-shop provisions.
Additionally, letters of intent may allow the parties to begin the process of obtaining governmental and other third-party approvals necessary to close the transaction.
What is the most common mistake that parties make when it comes to the letter of intent?
Often, having reached a handshake agreement, the parties want to maintain the momentum of their negotiations, so they rush to sign the letter of intent. This is especially true when one of the parties is eager to publicly announce the agreement. But even though the letter may be meant to be preliminary, the words in that letter can have a profound impact on the subsequent negotiations, providing one party with a psychological if not legal advantage over the other.
For example, sellers often sign letters of intent that contemplate an asset sale without fully appreciating the tax implications of such a structure. Later, having conceded that point in the letter of intent, it becomes very difficult to convince the buyer to restructure the deal.
Are letters of intent generally nonbinding?
They can be drafted to be either binding or nonbinding, but most commonly are a combination of the two, with some provisions being purely a reflection of the parties’ preliminary intentions and others having the weight of contract. It is critical that the letter specify which provisions are intended to be binding and which are not; otherwise, the parties may find themselves litigating this issue.
Which provisions are typically binding?
Typical binding provisions include confidentiality and other limitations on a party’s ability to publicly disclose the negotiations, as well as the standstill or no-shop provision, which is a provision that limits the seller’s ability to solicit or accept competing offers for a certain period of time. This allows the buyer time to complete its due diligence and to negotiate the definitive documentation without fear that the seller may simultaneously be negotiating with others.
What about the purchase price?
The purchase price in the letter of intent is typically nonbinding. Yet, for the reasons already mentioned, and because it is usually the key term to the deal, particular attention should be paid when drafting this provision.
In an all-cash deal, drafting the purchase price should be straightforward. However, when the circumstances merit it for example, when the purchase price is complicated by the existence of an earnout, holdback or equity kicker the parties should carefully consider how much additional detail should be included so as to avoid later disputes. Should the letter include the strike price, vesting schedule and termination date for any warrants to be paid at closing? Additionally, should the parties specify whether the earnout will be calculated before or after interest and taxes or based on generally accepted accounting principles (GAAP)?
Legal counsel can assist clients in identifying these and other significant issues that may need to be addressed in the letter of intent and can ensure that the letter meets the client's objectives. For these reasons, parties should discuss their objectives with their counsel prior to signing a letter of intent.
JULIO C. ESQUIVEL is a partner at Shumaker, Loop & Kendrick LLP in Tampa. Reach him at email@example.com or (813) 227-2325.
Nonprofits are essential to the health and welfare of our citizens and also crucial to our economy. According to The Urban Institute, National Center for Charitable Statistics, more than 1.4 million nonprofits in the U.S. pay more than 8 percent of total wages earned.
In order for these essential charitable networks to remain healthy, they must protect themselves from the same and sometimes additional legal liabilities faced by any other sector.
“There is absolutely no reason a nonprofit operation should not carry insurance,” says Christine Papa, vice president of Hilb, Rogal & Hobbs of Southwest Florida. “There are many types of risks, and they need to be aware of the potential legal exposures that, with a large claim, could cause them to become insolvent.”
Smart Business spoke with Papa about the inherent risks faced by nonprofits and how the right insurance program can provide cost-efficient and comprehensive protection.
What are some common misconceptions of insurance for nonprofits?
The biggest misconception is that they cannot be sued. They can be sued just as easily as a for-profit business. Nonprofits defend themselves against many claims, especially in regard to directors and officers liability and employment practices liability. In fact, employees of nonprofits bring on about 80 percent of all claims filed against nonprofit organizations.
Another misconception about nonprofits is that they are all the same. Nonprofit organizations vary in size and in purpose, and each nonprofit provides a different service to the community; therefore, their risks vary.
Additionally, there is a misconception that a simple general liability policy is adequate insurance for a nonprofit. General liability is only one of the important insurance coverages needed by a nonprofit.
What are some unique insurance exposures for nonprofits?
Nonprofits need general liability coverage for their fund-raising activities. Golf tournaments, theater productions and other events can increase their exposure. Volunteers should be included as an insured under the general liability insurance. Most insurance providers that specialize in nonprofits include this, so volunteers are covered when they are working for an organization.
Many nonprofits have volunteers operating motor vehicles, and often have individuals driving their own vehicles. Others have employees going from home to home to visit with clients. Nonprofits could have an exposure from owned and/or non-owned vehicles.
Directors and officers liability coverage protects the directors, officers, managers and employees for claims against them resulting from a wrongful act. In concert with this coverage is employment practices liability insurance. With such a high percentage of suits brought by employees of nonprofits, this crucial coverage protects management from claims arising from wrongful termination, discrimination and harassment.
Additional unique exposures include professional liability coverage for nonprofits that perform counseling or have professional staff members; abuse and molestation coverage for organizations with exposures involved with caring for or counseling children; and crime exposures for nonprofit volunteers who handle money.
Finally, many nonprofits are not aware of volunteer accident coverage. This provides medical coverage, up to a specified limit, for volunteers. It’s written for a specified amount, and the premium is based on a maximum number of volunteers. This policy reduces the number of possible volunteer claims being filed under the nonprofit’s general liability and affecting their claims experience.
How can a risk management program reduce liability, exposure and costs?
Most nonprofits are on a very limited revenue stream, and risk programs help keep their insurance costs down. An effective risk management program identifies, analyzes, controls and administers risk to help reduce the potential hazards and exposures.
Programs are based on the size of the organization. Large, national nonprofits may have strictly enforced and designated programs, while smaller nonprofits may simply have their insurance carrier perform a loss-control inspection to provide them with recommendations to correct issues that could cause a future loss.
How can a nonprofit best determine its insurance needs?
Nonprofits need to choose a broker that has experience in insuring nonprofit organizations. A broker with expertise in that area knows what markets to approach to best service a nonprofit’s unique needs. There is no cookie-cutter approach to nonprofit insurance; every nonprofit is different in size and purpose, and it’s the broker’s job to help identify and develop a program that suits specific needs.
CHRISTINE PAPA is vice president, Hilb, Rogal & Hobbs of Southwest Florida. Reach her at (941) 554-3111 or firstname.lastname@example.org.
When a company makes the strategic decision to relocate, expand or consolidate operations into a new location, it faces challenges and decisions that are beyond the scope of the normal conduct of business.
Effective site selection is a complex undertaking that requires extensive data analysis, planning and execution for a successful outcome. To safely navigate in these waters, many companies choose to engage a location advisory firm.
“The stakes are high and so are the possibilities for less-than-optimal execution,” says Dolores Seymour, managing director of Industrial Services at Colliers Arnold. “An experienced location adviser can guide corporate executives in making logical, defensible and successful decisions, with the assurance that they have not overlooked incentives worth millions of dollars to their bottom line.”
Smart Business spoke with Seymour about how a location adviser can design and implement a relocation plan and how a company can remain focused on core business issues throughout the process.
What crucial areas of relocation can be overlooked without professional advice?
Government incentives and tax savings can be overlooked or not realized to their fullest extent, leaving money on the table. Demographic data can be misinterpreted, leading to confusion at best or a bad decision at worst. Competing internal politics can lead to a subjective decision that does not enjoy full support within the company.
To plan well, the company must understand the labor market, the business climate, the incentives and real estate availability, as these factors apply to their specific needs.
How does a location adviser add value to site selection?
There are the obvious ways, in terms of financial gain and tax savings. Perhaps of equal importance is the fact that the location adviser works through an objective and well informed process. He or she conducts a needs analysis that helps the company understand the key issues and location drivers. In most cases, going through the process helps a company focus on its real objectives and key issues, which makes the relocation or expansion succeed fully.
If a company is planning relocation or a new facility, it is often a strategic move where confidentiality is critical. They may be moving into another market to challenge competition or increase sales. The adviser can maintain anonymity for the client while performing studies and negotiating incentives.
What types of companies would most benefit by working with a relocation adviser?
The range of companies that will benefit goes from those engaged in manufacturing to high-end regional offices for service organizations. If they are not experts in real estate, site selection, demographic analysis and governmental incentives, and if they do not have excess internal staff who can dedicate their time to a relocation project, they benefit enormously from using an adviser. Most companies have found they are most profitable when they concentrate on their core business.
What additional resources do advisers bring to the table?
Location advisers have up-to-date and multiple computer and database technologies. They are experienced and can customize the search to reflect a company’s real objectives. Clearly, if your core business is analyzing and locating sites and understanding government incentives, you have more experience, tools and staff to devote to that task than if your business is manufacturing computer parts.
A larger real estate organization with a global affiliation of independently owned real estate services firms is able to provide expert local real estate knowledge, so it can implement the consulting advice with local and direct site selection and negotiation.
Is relocation consulting cost-prohibitive or can it actually reduce the final costs?
Perhaps I can best answer with an example. One relocation expert was working with a company whose controller thought that $300,000 would be his best incentive on a manufacturing relocation in the U.S. The expert identified opportunities he was not aware existed. As a result, they were able to negotiate a package of $3.6 million in incentives and grants. The consulting fees are very reasonable and provide clients with a great deal of value for the money.
Can a relocation adviser work within the company to lessen any internal politics that might arise due to differing needs and opinions?
The adviser is in a position to challenge all of the client’s assumptions and to help prioritize issues, so that the outcome will be logical and defensible to the board, employees and stockholders. He or she can maintain confidentiality internally to elicit the most accurate responses without creating conflicts.
DOLORES SEYMOUR, MCR, CCIM, SIOR, is managing director of Industrial Services at Colliers Arnold. Reach her at (813) 221-2290 or DSeymour@colliersarnold.com.
Cesar Alvarez was a better-than-average high school football player, but when he wanted to take his game to the college level, he was discouraged by his coach. “He told me, ‘Look, you’re a pretty good player, but you’re never going to make it in college. You’re not big enough. You’re not fast enough,’ says Alvarez. “I didn’t know any better. I said, ‘I guess I can’t do it.’ That was the end of it, and I moved on.”
Alvarez’s younger brother had the same experience, but he didn’t listen to his coach. “He went to the University of Florida and was a consensus all-American as a sophomore,” Alvarez says. “This kid, who they told couldn’t make it, didn’t listen, and he did incredibly well.” Ever since that time, Alvarez, president and CEO of Greenberg Traurig LLP, has refused to let anyone tell him what he can and cannot do. And he runs his business with an attitude that anything is possible. “I don’t let anybody ever limit what we can do,” he says. “It doesn’t mean we’ll be successful. I’ll take my three strikes. I’m going to get to the plate and I’m going to try to hit the pitch.”
That attitude has led Greenberg Traurig from 325 attorneys and one office in 1997 to 1,650 attorneys in 33 offices around the world today. Alvarez has built the firm by insisting on collaboration, delegating decision-making to those closest to the customer and finding the right people to carry it all out.
Alvarez recounts a conversation with the general counsel at Enterprise Rent-A-Car Co. about developing culture. Enterprise chose to build the company based on service and made that the key factor in its approach to business. “Unless you have the highest rating for service in whatever job you have, you cannot be promoted,” Alvarez says. “It doesn’t matter what else you are doing; you have to have the highest rating for service. Guess what they’re going to achieve in that organization — service.”
One of the things that has allowed Greenberg Traurig to grow is Alvarez’s willingness to relinquish control over many areas of the company. “I have always had a decentralized view of management, particularly for a service industry,” he says. “The way I have managed, always, is by giving the power to make decisions to those who can best make it at whatever level it may be. “It would be pretty silly of me to think that I can really figure out what needs to be done in 33 other cities all over the United States and the world, that in over 25 practice areas, I’m going to be the smartest guy and figure out what to do in those practice areas.”
If an organization is going to continue to grow, Alvarez says several things must change, including the way new people are brought in to the firm and how they are motivated. “It is very clear to me, after spending some time with this, the new generation thinks about things differently than we do,” Alvarez says. “These are the folks who are going to be moving the organization forward in the next 15 to 20 years. They’re the ones who we need to motivate. “If you put your head in the sand and say, ‘Damn it, this has worked for us the last 30 years, and it’s going to continue to work the next 30 years’ — anybody who does that is making a mistake.” Alvarez needs a certain kind of person to fit in to the culture — independent thinkers who can work with others and handle the responsibility delegated to them. “We obviously understand that intellect is important, but intellect is not the only reason to hire someone,” Alvarez says. “Now we look at other traits that, in our view, are probably as important — if not more important — to ultimately determining how successful you’re going to be.”
At Greenberg Traurig, Alvarez took a similar approach to emphasize collaboration. The law simply has too many specialties for any one person to be able to handle it all, and Alvarez wants everyone working together to solve problems as quickly as possible. “When you’re dealing with 1,650 lawyers, that’s 1,650 brains that you can tap for information,” Alvarez says. “If you send an e-mail only to corporate lawyers, you’re only going to tap those corporate lawyers. We have a lot more in our brains than the area of practice that we practice in. “Things need to be right; they need to be right immediately. We don’t have a lot of time to do research and other things that we had 10 years ago.”
Alvarez has a very simple method to encourage collaboration: He pays for it. “Whatever the key factors are that you are evaluating in [your] compensation [plan], that is what you will get,” Alvarez says. “If people know that you are putting dollars [behind collaboration], then collaboration is important. If they get negative reviews on collaboration, then their compensation is going to be less, and you’re going to get a lot more collaboration.”
At the end of each year, Alvarez and a few of his top managers review reports from each of the partners. “The first page of questions deals with collaboration — ‘Who has helped you? Who has collaborated with you? And who has not collaborated with you?’” Alvarez says. “I get this for 600 partners, and I read them all. That’s how I can focus and know who are the folks who are living through to the right culture and which ones are not. The way you create monetary incentives will drive the culture tremendously.”
Because collaboration is so important, Greenberg Traurig simply can’t afford to have employees who can’t work with others. “I can get rid of people I don’t view to be collaborative,” Alvarez says. “I can warn them first by impacting their compensation. Then if they’re not working, move them out so you don’t have a cancer growing.”
Whatever power the title may convey, when a CEO begins managing every decision, the company will suffer. “One of the biggest mistakes CEOs make is when they get that title — chief executive officer — they think their job is to make all the decisions,” Alvarez says. “If I had a perfect day, I should not have to make any decisions. It’s the opposite of what your name suggests. The more decisions you’re making, the worse it is for the organization.”
There is no argument that validates a CEO refusing to give up some control. “I can tell you why I should be making all the decisions,” Alvarez says. “I can make all the rationalizations for that. Basically, it is a wanting for complete control of what is going on. The more I do of that, the less control I have. You’re much better off letting the people that are closest to the information make those decisions and let them go. My rule is no one in senior management is allowed to come up with good ideas. Our job is not to come up with good ideas. Our job is to help those who are really operational in running offices, running practice areas, running departments — help them implement their good ideas. “Ultimately, that’s how it’s worked for us. It’s highly decentralized. What keeps us together is a very strong culture. On paper, I have great powers. But that’s not the way it really runs. It runs because I have a tremendous amount of respect for the people that are out there making the decisions. I’m here to help. I’m not here to tell them what to do.”
Instead, Alvarez works to promote communication and get employees to work together to promote the company’s culture of collaboration. “My job is to create a collaborative environment so those folks don’t feel threatened and they can talk to each other and they feel good about the process, instead of me being the one that sits here and decides, every day, there is nothing that can be done in the firm without talking to me about it,” Alvarez says. “There are plenty of people who do that. You just don’t get a good management system out of that.”
The most effective way to accomplish that is to lead by example. “Culture develops through leadership,” Alvarez says. “If you have a very controlling CEO, that’s the kind of culture you’re going to have. It’s not going to be a creative culture. It’s not going to be an open culture where everybody throws out ideas.”
Alvarez says there are right and wrong ways to develop a culture. “I see too many enterprises where they get some consultant to tell them what the right culture is,” Alvarez says. “They decide this is the culture they’re going to preach to everybody. You can preach it all day long, but it doesn’t mean anything because you’re not aligned that way — both in your recognition and your financial incentives and what the top management does. Until you do it, it’s not going to happen. “You can say you’re an empowering culture, but if you have an authoritarian CEO — you can preach it all the time, you can have as many sleek brochures as you want — it’s not going to happen.”
Find people who fit the culture
The company now looks at leadership skills and business acumen in addition to their law school grades. “When you look at people’s resumes, when you talk to them, you want to have people that have done more than just gotten great grades and graduated from great law schools,” Alvarez says. “That’s a given. You’ve got to be able to do that, but you’ve also got to see what they have done from a leadership position.”
Alvarez has also changed who is doing the recruiting. “Instead of sending the same folks to recruit, the more junior partners, we have turned that around, and we send the most senior partners who can make judgment calls on those other subjective factors,” Alvarez says. “We’re making sure that we hire to retain instead of hiring 100 associates (and) some will survive and some won’t survive.”
For newer employees, the turnover rate in the last two years has dropped about 4 percentage points from the industry average of about 22 percent. “Our attrition rate this year went down to 18 percent, which may not seem like a lot, but going down 3 to 4 percent is significant,” says Alvarez. “Turnover is very costly for any organization, particularly any service organization. If you have turnover, you have people that you have to bring up-to-date, not only into your business but also the clients’ businesses that you are representing. “It is a costly process on two levels. The more you can create a continuity of folks who are servicing your clients, the better off the clients are and the better off the firm is over time. Training is an expensive process, particularly in the complicated field of law.”
The future growth of the firm will depend on how on-target Alvarez’s leadership decisions have been. The firm posted 2005 revenue of $860 million and is projecting 2006 revenue of just over $1 billion. Alvarez knows future success is directly tied to the changes he has implemented. “The worst that would happen is that we would decide we can motivate people the same way and we didn’t have to change that many things,” he says. “That would be the worst case, if we’re completely wrong about this. If we’re right about this, and you just don’t do anything about it, you can miss the boat big time. “I think this is clearly something that you need to examine, and think about.”
HOW TO REACH: Greenberg Traurig LLP, www.gtlaw.com
Now armed with an abundance of timely data, the real estate industry can better tell us where we are, where we’ve been and where we’re going. These statistics are the basis for real estate cycles that affect both residential and commercial markets.
“If investors know the market is going down, they tend to become more conservative, and if they know it’s going up, they likely will become more aggressive,” says John Stone of Colliers Arnold. “And if they don’t know what’s taking place in the market, they tend to sit on the sidelines.”
Smart Business talked to Stone about the current real estate cycle and how history will show buyers and sellers where the market may be headed.
What is the basic methodology of a real estate cycle?
Whether we like it or not, history tends to repeat itself in some fashion every time the market heats up, ultimately reaches a peak, cools off, settles down, and then starts all over again. The only questions are when, how much, and for how long.
What sector is leading the way into the next cycle?
Historically, the residential market single and multi-family has led the way into and out of most real estate cycles, and this cycle appears to be holding true to history. The office, retail and industrial markets tend to follow suit 6 to 18 months later.
Where are we in the current cycle?
According to our research, existing home sales in Florida hit its peak in June 2005 with 25,552 sales, as reported by the Florida Association of Realtors. The category has been declining ever since, with June 2006 sales of 18,089 a decline of 29 percent. Sales of multi-family investments in Florida hit its peak in October 2005 with a record $800 million in sales, according to Real Capital Analytic. Since then, sales have declined by 35 percent, with June 2006 producing a volume of $520 million.
What forces are driving the current real estate cycle?
Every cycle has its own personality, and this one is no different. Rising interest rates routinely prove to be one of the strongest influencing factors, especially when paired with negative consumer-confidence levels that ultimately affect all sectors. This cycle appears to be following a similar course with interest rates starting to climb and 30-year mortgage rates up 60 basis points since the middle of 2005. However, rates are still at historic lows, comparatively speaking.
The rising interest rates, coupled with record high oil prices and two horrific hurricane seasons, have eroded consumer confidence, setting the stage for this phase of the cycle.
How will insurance rates influence the next cycle?
There is no question that the ongoing insurance crisis is having a chilling affect on all aspects of business, including real estate. Most in the industry agree that it will influence real estate values going forward, but no one knows how much. The insurance crisis may prove to be the single biggest challenge ever faced by our general population, regardless of a person’s level of interest in real estate. Only time will tell.
Where do the commercial sectors appear to be heading?
Office, retail and industrial sectors are still moving along with tremendous investor and user interest. The question is, How long can it hold out? The insurance crisis and general economic pressures are starting to strain even the strongest of wills.
According to cycle history, what sectors are predicted as strong markets for today’s investors?
Despite all of the challenges faced by the residential and commercial sectors, real estate in general has proved to be one of the most viable investment vehicles available, and there is no reason to think this will change any time soon. I still promote multifamily investments, due to their ability to quickly offset rising operating costs with increased rents. However, diversifying your investment portfolio is always the best advice.
How do owners and investors utilize real estate cycle information?
Most investors want to buy when the cycle is in the cooling-off phase, or at the bottom of the cycle. Owners want to sell when the cycle is near its peak. For most owners and investors, timing a sale or purchase is a combination of good planning and a little luck.
JOHN W. STONE, CCIM, is principal and director of multifamily investments at Colliers Arnold. He is the past chairman of the Colliers Multi-Family Advisory Group for North America. Reach him at (727) 442-7184 or email@example.com.
DeGeorge’s work force is made up of employees who have previously held jobs running hotels or motels. He hired them knowing they’d know exactly what to do in his absence, because they’ve all had experience being the boss of a small business themselves.
His strategy is working, as the hotel and motel broker anticipates 2006 revenue of between $30 million and $32 million, up from $25 million in 2005.
“To be successful, you have to know your business and love it,” says DeGeorge, president of Greene, Canfield, DeGeorge. “You’ll never be able to motivate the people around you if you don’t.”
Smart Business spoke with DeGeorge about how he’s handled the challenges of growing a business and communicating his vision to his employees.
How do you empower employees to make decisions?
It has to come from the background of the people we’re choosing, which are all former hotel owner-operators. They’re all part of small business, they started with small business, and they understand the nature of keeping a small business running. Anyone is able to do anything. They are very capable of making decisions.
There’s no punishment for making bad or wrong decisions. Any decision is a decision that we all look at, no matter who has made it. If there’s a problem, we go back and analyze it.
That way we all learn from it, and next time we can make sure a correct decision is made. But we see very few times there’s a decision in this office that was made that the others don’t agree with.
How does having employees who can make decisions benefit the company?
It takes a lot of pressure off of everyone. They think things through, go with the gut reaction, which is typically the best reaction. A lot of times, our decisions have to be made pretty quickly, and they’re able to at least not stall the process, and make a decision and go forward.
In today’s world, with fax and e-mail, people don’t want to or understand why they have to wait. It’s become an electronic world where things move very quickly, and people want to see the process continue. There shouldn’t be any delays in that process.
How do you know when it’s time to expand your work force?
There’s never a good way to know. There’s a time when you feel you just can’t handle the load. We’re struggling with that right now, when is it time to do an expansion rather than try to work everybody a bit harder?
But you don’t want to burn out anybody, so there’s always that struggle. You’ve got to watch the people and make sure they’re not overtaxed.
How do you guard against growing too fast?
Growing too fast could be a definite pitfall. Markets change, and there’s always surges, peaks and valleys in all the growth areas. Be aware of where you’re at and stay focused on where you want to go.
Having a long-term plan is a must. Just stay focused, see if you are meeting your goals.
Strategic planning is important for any business. There are a lot of people who don’t want to grow their business. It isn’t always about growth.
We have stifled ourselves because we don’t want to overgrow. Right now, at a peak, we don’t want to get into an overgrowth situation.
Are you concerned with revenue when you are growing?
As you grow, it’s part of it. As your goals move with that growth the revenue will follow. We try to have a team effort and stay focused on the client and stay focused on who we’re working for.
Service is so important. Most companies don’t understand the word service anymore. You take your car in for service and it says ‘Service’ above that door, but they don’t understand what the word means.
It’s amazing to me. The hospitality business is pushing people and standards, and that’s what we as a company are trying to do just push that standard.
HOW TO REACH: Greene, Canfield, DeGeorge Ltd., (727) 447-8383 or www.gcdhotels.com
“Choosing the right location for your business is a major decision that requires time and expertise to achieve an optimal outcome,” says Patrick Duffy, president of Colliers Arnold.
“We assisted a financial institution when they needed a new ‘money center’ for the transfer of cash. The initial instructions we received were focused on cost of the real estate and proximity to highways, but after talking with their operational team, we learned that work force training and security issues were so intense, the primary driver was actually employee retention after the move. We identified a cost-efficient location with good access to the highway network, and most importantly, within an acceptable commute zone for their existing employees. Turnover after the move was minimal.”
Alternative location analysis involves a matrix of many factors. Every company is different, so their criteria will vary based on their unique set of requirements.
Smart Business asked Duffy to explain the key elements of a successful site assessment and why you should not sign a lease or purchase agreement without one.
How does geography impact site selection?
Determining if your business is driven more by proximity to your customer base, your employees, modes of transportation or perhaps other support facilities can be the primary driver for site analysis. For example, retailers are definitely more interested in locating near their customers; high-skilled labor-based companies tend to be more interested in being near their employees; manufacturing and distribution users need employees and need to keep transportation costs down by locating near convenient shipping routes such as interstates, rail, airports and seaports; doctors tend to congregate near hospitals; lawyers settle near courthouses.
What factors should be considered when selecting between several viable locations?
Assuming that you have multiple alternatives in your target geography, narrowing the list to the best option requires both a quantitative and qualitative approach. When deciding between alternatives, the base lease rate (cost per square foot of space leased) is not always the primary driver.
Total cost of occupancy includes all costs associated with leasing the space over the term of the lease. The base lease rate is the main cost. Other charges including taxes, insurance, maintenance, landscaping, management fees, after-hours a/c charges and parking fees differ from property to property and landlord to landlord. Escalation charges (rent increases over time) are also negotiable and can obviously have a significant impact on the total cost of occupancy over time.
When is bigger not necessarily better?
The efficiency of buildings and space can also vary greatly. In office space, the relationship between the floor space that a tenant can actually use (inside the walls) and the square footage he or she pays for (including the common area use like lobbies and common restrooms) is measured by an add-on or load factor. Load factors vary from city to city, ranging from approximately 15 percent to 23 percent. They have a real impact on the effective cost of occupancy. Calculating the cost per useable square foot as a base of comparison allows for a more appropriate benchmark based on cost per square foot.
Even within the determined useable space, the efficiencies of space vary. Odd-shaped buildings or buildings with narrow or overly wide floor plates can create inefficient areas within the tenant’s space. Many times, we use floor plans with desks, delineated to determine how many people can actually occupy the space, and use cost per person as a point of comparison. In industrial buildings, we may lay out rack systems with sufficient spacing for forklift equipment to determine the efficiency of the space for a particular user. Retailers typically have a set plan for product display that requires a certain number of aisles with specific spacing.
What additional features might help identify a superior location?
On the qualitative side, a building or space that is more aesthetically appealing may help attract and retain valuable employees or customers. Ease of access (ingress/egress) may make the location more convenient. Proximity to restaurants for efficient lunch breaks may be a decision point.
What is the typical timeline for a successful relocation?
In a relatively tight market, which exists in Tampa Bay today, you should start your relocation planning at least 12 months in advance of your planned move date. This will allow time to determine your criteria, search the market, negotiate a lease or purchase contract, and build out the space to meet your needs.
PATRICK DUFFY is president of Colliers Arnold. Reach him at (813) 221-2290 or PDuffy@colliersarnold.com.