A year ago, Cedric Langston, the service manager at Gables Sheridan in Atlanta, didn’t have to worry about getting a call at 3 a.m. if someone pulled the fire alarm at the 329-unit mid-rise property. That’s because a year ago, he was in Atlanta-based Gables Residential’s development shop as the assistant superintendent in charge of the finishes. But these days, he’s back on the property level, fielding late night calls. “The only difference is that you have to be on call,” Langston says. “In development, you don’t have the residents to deal with. In maintenance, you do. They can call you at any time of night for an emergency. Other than that, it’s pretty much the same.”
The reason Langston isn’t more riled up about being pulled away from a job that he calls his “passion” to take middle-of-the-night calls about clogged toilets is because he knows he’s one of the lucky ones. Gables’ development activity plummeted nearly 54 percent, from 1,858 starts in 2007 to just 863 starts in 2008. And with that precipitous drop in construction activity, it’s had to let a lot of its development people go.
Indeed, as development and transactional volume has ground to a halt for most firms across the country, they’ve been faced with hard decisions. What do they do with those employees serving those divisions? Unfortunately, the answer is usually layoffs. But when a company has versatile, talented staffers, like Langston, that it can’t afford to lose, it can make sense to slip them into other roles if they have skills and, most importantly, the desire to make the move.
“If you have a known commodity and known performer, why not put them in there and let them get the job done for you?” says David Adelman, president and CEO of Campus Apartments, a Philadelphia-based student housing firm with 20,800 beds.
But switching hats isn’t always easy. Development know-how requires a very different skill set than property management, for example. So before you ask your superstars to strap on new responsibilities, consider their strengths carefully and weigh all the options.
Who to Move—and Where
In most apartment firms, two sectors have been extremely hard hit in this recession—acquisitions and development. In 2005 and 2006, multifamily firms had ramped up their construction activity, starting 352,500 units and 335,500 units, respectively, according to the National Association of Home Builders. Sales volume also exploded, totaling 4,456 properties worth $92.4 billion in 2005, according to Real Capital Analytics, a New York-based research firm. To support this volume, multifamily firms beefed up their staffs, paying for top talent to serve both their development and acquisition shops.
Then, activity screeched to a halt. This year, starts fell to 126,000 units and transaction volume through September has fallen to 493 properties worth $6.9 billion, according to Real Capital. Those large staffs suddenly had very little to do. “There weren’t many options,” says John A. Schaffer, CFO of Contravest, a Lake Mary, Fla.-based real estate firm that started 866 units in 2008, down from 1,617 units in ’07. “If development comes to a standstill, a lot of companies are forced to let people go.”
And let them go they did: The economy overall lost 1.5 million jobs in the construction sector since December 2007, according to the Bureau of Labor Statistics. But in a number of cases, the individuals—not their roles—were salvaged. Most industry observers say that in a down construction cycle, there’s a renewed emphasis on property management, and, as a result, firms began transferring talent from debunk development teams to the asset and property management side.
The examples are everywhere. “We took some development and construction folks and converted them to facility roles,” Adelman of Campus Apartments says. “We also took a couple of the junior development associates and moved them into pure property management.”
Pick of the Litter
If you are looking to hire, today's a good time to add talent.
Right now, Steve Heimler, founder of Cirrus Asset Management, a Calabasas, Calif.-based company, considers himself luckier than some in the industry these days. He started his company in 2007 to operate multifamily and hospitality assets in California, Arizona, and Hawaii—and his business is growing. This year, Heimler added 10 people to his corporate staff and another 60 folks at the property level.
“I brought on some acquisition folks and some asset management folks,” he says. “All of those guys were freed up. We were able to get available people at very reasonable pricing.”
In fact, in some cases, that talent comes at a steep discount. “I got one guy who was making a large salary for a big operation,” Heimler says. “Now, he gets benefits and is on a commission basis.”
Others in the industry are also finding that the hiring process is easier today. “The quality of the people coming into the business is great—probably the best we’ve had in as long as I can remember,” says Julie Smith, president of Greenbelt, Md.-based Bozzuto Management Co. “The people coming in are happy to have jobs, eager, and very excited about pursuing a career.”
In fact, Smith says Bozzuto is finding quality talent outside the industry as well. “You can get some great people from the hotel and hospitality industry,” she says. “These folks have work experience, work studies, and internships. They’ve really been trained on customer service. And they like [multifamily] because the hours are more favorable, and the money is comparable.”
Contravest did the same, moving one of its development/acquisition people into a regional property manager role. It shifted another acquisition person to buying apartment properties, instead of land.
The Bozzuto Group in Greenbelt, Md., an apartment owner and manager with approximately 28,500 units, made similar adjustments earlier this year. “We’ve taken one of our developers and put him in a business development role for the construction company,” says Julie Smith, president for Bozzuto Management Co. “We have taken another developer and put her in a new business role for the management company. We’ve taken one development associate and put him in an analyst role in management.”
At some firms, the entire development group has been decimated, leaving those in upper management (some of whom have an ownership stake in the company) to take on additional jobs. For instance, Spencer Stuart Jr., senior managing director with Dallas-based Legacy Partners Residential Development, a company that hasn’t had a single start since 2007, is a regional partner but is now taking on more of an asset management role.
“As a merchant builder, our goal is to build them and sell them,” Stuart says. “We weren’t holding them very long. There wasn’t that much required. Now [with properties not selling], there’s a lot more required.”
The shuffle-and-shift activity hasn’t been limited to developers, either. Dave Woodward, CEO of Laramar Communities, a Greenwood Village, Colo.-based owner and manager with around 30,000 units, moved acquisitions officers in his Chicago, South Florida, and Southern California locations over to asset management- and project-related functions. “We made the strategic decision to keep them in the company, even though it’s expensive, in order to be in a position to take advantage of acquisition opportunities when those start to materialize,” Woodward says.
Greg Mutz, CEO of AMLI Residential, a Chicago-based apartment owner with approximately 22,000 units, is refocusing many of his asset management team members on other tasks. For instance, AMLI invested in getting 16 of its employees LEED-certified and educated about environmental savings. “We are making a real commitment to green,” Mutz says. “We don’t have a lot of talent in this area, and, so far, we haven’t generated a buck.”
But Mutz hopes this investment will eventually help AMLI reduce energy costs at its own properties, while possibly offering consulting services to others in the industry.
Getting the Right Fit
But how do you know who to keep and who to lose? It’s easy to justify holding onto the top-level superstars, those folks whose institutional knowledge, work ethic, and contributions to the bottom line are well-documented. But when it comes to mid- or entry-level employees, it’s important to remember that some people transition better than others. The key is to recognize certain qualities—flexibility, eagerness, versatility, commitment, intelligence—in those individuals that make them suitable to a role shift.
For instance, when Kettler, a McLean, Va.-based owner and manager with 13,000 units, needed to trim its construction services department, it moved two people—Nicole Jones and Chris Churmusi—from the development marketing department to the corporate marketing team. Churmusi is a market research specialist, while Jones is a senior sales and marketing manager. They say the only difference in their new roles is the audience—they’re now marketing to renters instead of owners.
“Even though management and development have their own marketing department with their own responsibilities and focuses, we’re structured to work jointly as well,” Churmusi says. “The move was easy because I knew the dynamics of the company and the people.”
For development employees, the maintenance team is an easy fit. “Generally, development guys understand how to prepare a building for service,” Adelman says. “So we moved several guys into some of those [maintenance] capacities to help organize how we perform our operations and customer service and all of that stuff.”
In fact, Adelman thought the move would make his developers more cognizant of some of the practical aspects of making a building easier to operate, such as where they’re putting the trash centers, maintenance shops, even access to HVAC rooms. “They understand the process of zoning and entitlements, and they’re learning how to build a building,” he says. “They don’t know how to operate a building, though. The most successful developers are the ones who have operated buildings before. They think with operations in mind as they’re going through the construction and design process.”
Moving someone from one marketing department to another within the same company—or from a development team to the maintenance side—can be seamless. More complex moves, where developers put on property management hats, can be more perilous. In those cases, it often comes down to experience.
Angie Mara was a senior property manager at Gables before she moved to the development side in 2008. Talk about poor timing. Soon after, the company’s development engine slowed, and Mara went back on-site as a senior community manager. “I knew all of the practices at the company,” she says.
On the acquisitions side, a good fit can often be found in asset management. “Anybody who is an acquisition analyst is perfect in asset management because they’ve been underwriting, and they understand how asset management works,” Adelman says.
Woodward has given his acquisitions folks work in special projects that utilize their skill sets. For instance, they’re integrating the company’s market surveys with their underwriting pro formas and overseeing the completion of management agreements. Ultimately, these redefinitions of roles can benefit an organization so long as it can afford to carry the overhead. “It’s really an opportunity for us to catch up on a lot of projects that we’ve had sitting on the half-ready to implement but haven’t had the bandwidth to complete,” Woodward says.
And some of those sidelined projects won’t take long to complete—which is a good way to prepare for a return to development or acquisition activity where the employee’s skills will be in demand once again. “These are all vice president-level people [we’re transferring],” Woodward says. “It doesn’t really work to say, ‘Now you’re going to run this department for six or nine months.’ The only way to use these guys effectively is to give them special project-oriented tasks—something with a beginning and an end.”
Potential Pitfalls
Despite the success stories of employees such as Jones, Churmusi, and Mara, many firms remain wary of shuffling their people, particularly to property management. For those moves to work, Bozzuto’s Smith says anyone moving into management has to show genuine interest. Otherwise, you risk that they will fly the coop and head back to their “passion” role the minute the economy shows any signs of renewal.
“Development and management are very different,” Smith says. “If someone is just interested in staying on payroll until there’s a light at the end of the tunnel, it won’t work. Management is a complicated business. It takes a lot of work to learn it.”
Michael Lynd, vice president of investments at Lynd Cos., a management firm based in San Antonio, Texas, with 34,000 units, thinks that developers generally don’t make good managers. “I am not sure that development personnel, who tend to be entrepreneurial, will be satisfied with this type of position over the longer term,” he says.
The move from acquisitions to property management can present similar challenges, according to executives who have tried the switch. “To move between property management and acquisitions requires totally different skill sets and personalities,” says Frank Apeseche, CEO of Boston-based multifamily owner Berkshire Property Advisors, which has approximately 25,400 units. “To move from acquisitions to processes [management] is demeaning for them. You’re forcing people into jobs that they don’t have a passion for, and they’ll only stay when they can’t find another job.”
Stuart of Legacy Partners concurs. “For the guys addicted to doing the next deal, the asset management role is tame,” he says. “They just don’t enjoy it.” Which is why he recommends that if you’re considering moving a developer or an acquisitions manager to a new role, that you make sure they can leave if they don’t like the job.
Steve Heimler, founder of Cirrus Asset Management, a Calabasas, Calif.-based multifamily and hospitality asset manager, has tried to shift two of his acquisition guys to asset management and has had limited success. One wanted to learn the nuts and bolts of asset management, but the other hasn’t seemed concerned with it so far.
“Acquisition guys can gloss over a lot of details,” Heimler says. “Property management really is a detailed job. Acquisition guys focus on the numbers in their pro forma, but sometimes they don’t want to sit down to do the work. They like buying and then handing it off.”
Ultimately, this kind of attrition can be painful, especially in the development arena. “If you’re a development guy, I don’t know what you do,” Woodward says. “There will be virtually no development for a few years. Do they leave the industry?”
If that happens, the industry will lose a great deal of institutional knowledge. And that could put it in a major bind when it is time to build again. “The best and brightest minds that have been well-trained in the arena are going to go elsewhere,” Stuart says. “A lot of those guys will never come back. We’re losing a lot of knowledge in our industry, and we will lose a lot more. It will be a while before the economics of new development make sense again.”
And, until it does, guys like Langston will still be taking calls in the middle of the night.