Andrew Hochberg, Forbes Councils Member
Forbes Business Council, COUNCIL POST| Membership (Fee-Based)
Apr 26, 2023,09:30am EDT
Andy Hochberg is the CEO and Managing Principal of Next Realty, a Chicago-based real estate investment and management firm.
At my real estate investment and management firm, we embrace a business strategy built on patience, agility and diversification.
Based on my experience with this framework, I believe that any firm can use these principles as a successful formula for the full life cycle of the properties in their portfolio—from deal identification and acquisition to stabilization and disposition.
Overall, I believe that using the patience, agility and diversification framework can afford you the benefit of a disciplined approach to each of your investment opportunities while helping you maintain the flexibility to adjust to dynamic market factors.
Patience may be one of the most difficult traits to master, for I find that many investors are increasingly focused on quick results and instant gratification. In most businesses, including those involving commercial real estate, desirable results often take time to achieve.
Patience plays a significant factor in success in this sector since you have to acquire investment-grade commercial real estate that will generate attractive, risk-adjusted returns for your investors.
You often have to review thousands of opportunities, carefully searching for the proverbial needle in the haystack. Sifting through investment packages, conducting market analysis and evaluating future scenarios requires diligence and discipline.
Patience is also a critical factor in understanding that your business is not conducted in a vacuum. There are outside factors that may influence your ability to execute.
For example, tenants could go out of business or unexpectedly file for bankruptcy. Or, the potential buyer of an asset may encounter significant hurdles, impacting the ability to close a transaction.
Patience requires us to assess each potential roadblock with creativity, flexibility and resourcefulness. Taking the time to carefully evaluate alternative approaches to a prospective deal can provide a higher likelihood of success.
Important things to consider about patience:
- The longer the investment horizon, and the more complicated the operational process, the greater the level of patience required.
- Impatience, which may also be considered short-sightedness or the result of poor planning, can be very detrimental.
- Patience has its limitations in terms of missed opportunities. Inaction caused by being too patient can be paralyzing and costly. It is equally important to know when to cut your losses in an unsuccessful investment or company initiative.
Agility is generally viewed as the ability to respond quickly, deliberately and with conviction. When the path to successfully complete a desired course of action is challenged or compromised, we must promptly reevaluate our business plan to pivot to an alternative strategy.
In the early 2010s, the retail landscape was dramatically impacted by changing industry and economic forces: The growth of e-commerce, a rapidly decreasing roster of replacement tenants and the unpredictability of retaining tenants long-term.
As an example of agility, my company’s portfolio during this time was heavily weighted with retail, including several big box retail assets. With diminished confidence in big box retail’s ability to provide a favorable risk-reward profile, we pivoted from solely focusing on retail investments, branching out to include additional property types.
Important considerations about agility:
- Often, agility represents the ability to adapt conceptually as market factors evolve. Executing the specific business plan may take time and require patience.
- In complex scenarios, agility may necessitate having a team of experts on staff or readily available.
Diversification ensures that a company or real estate portfolio is not concentrated in a single sector, location or business model.
I recommend a strategy that assembles a portfolio of diverse property types and locations and stresses individualized business plans for each asset.
For example, my company’s strategy involves selecting primary and secondary markets with strong economic growth, dense population and appealing asset valuations. When entering a new geographic location, make sure to focus on asset categories where you possess specialized knowledge and to frequently collaborate with local operational partners to facilitate your exploration of the area.
When looking at diversification, there are a number of factors to consider:
- Diversification may also include a balance between short- and long-term holding periods and the perceived level of risk involved.
- The diversification plan should be a logical extension of your existing business to leverage market knowledge and operational expertise. Diversify in an educated manner and go with what you know. For example, buy the asset class you know in an emerging market or venture into a new asset class in a geographic region where you understand the local culture and nuances.
You can help distinguish yourself in the crowded and competitive field of commercial real estate through adherence to the principles of patience, agility and diversification. In fact, these principles apply universally to any business niche, and can help lead to a successful model for growth and endurance.