Beyond the Chaos: Succeeding in Today’s Turbulent Times
Insights and Strategies from the 2018 AFIRE Annual Membership Meeting
- JOHN MCCORMACK
In the welcome letter that was published in the 2018 Association of Foreign Investors in Real Estate Annual Membership Meeting program, Ed Casal, 2018 AFIRE Chairman and now CEO of LaSalle Global Partner Solutions, wrote:
“We do live in very interesting and confounding times. The world order that’s largely existed since World War II has been called into question. Technologicaladvances and globalization challenge our capabilities and customer relationships, while creating new opportunities.”
Indeed, the two-day conference entitled Correction, Crash or Continuance, explored the confusion, challenges and opportunities that are facing foreign real estate investors in today’s tumultuous world. But speakers and attendees did much more than simply explore the unrest. They also came together to share insights that could help them survive – and thrive – in the current and future environment.
Not surprisingly, the current political environment and economic climate surfaced as areas of concern. Much of the worry emanates from the uncertainty surrounding Donald Trump’s presidency, according to Jim VandeHei, Chief Executive Officer at Axios, a media company that delivers news and analysis.
Assessing the political climate
Chief Executive Officer, Axios
This volatility stems, at least in part, from the increased use of social media. With social media, “you unleash the animal spirit in so many people who have opinions. And, people who have opinions seem to be very polarized. Social media pulls people apart,” VandeHei said. Cable television also polarizes people, as Democrats and Republicans tend to zero in on shows that reinforce their own views. In addition, people are moving to places where they can isolate themselves from diverse opinions – with Republicans moving away from cities and Democrats migrating to urban centers.
As such, the instability is apt to continue for some time. “Will it be as volatile and crazy as it is when Trump is tweeting eight times a day? Probably not. [But we] are in for another ten years of volatility . . . Trump is not the cause of where we are at today. Trump is simply the effect,” VandeHei said.
Political chaos, however, should not stymie real estate investors, according to Ray LaHood, former Department of Transportation Secretary. “This is a time that those of us who are involved in government and politics really have never seen before. But even though it’s difficult to find positive news in D.C., we are going to survive what is going on in D.C. We are going to survive this administration, just as we have survived many others,” said LaHood, who currently serves as Senior Policy Advisor at DLA Piper. “Remember, that on July 4th of this year, we celebrated 240 years of the United States of America – a country and form of government that many want to replicate. We have a great system of government. No one person can dictate what’s going to happen. We have the checks and balances needed.”
Dept of Transportation Secretary,
VandeHei agreed. “We are in so much better position than any other nation on earth right now. Still the best place to build a business, still the most curious creative people on the planet come here. So, it’s a great place to be,” he said.
Bipartisan ways are bestTo create an environment that nurtures success, however, the country needs to solve problems in a bipartisan manner, according to LaHood. “If you look at the rich history of America, we have solved a lot of big problems by acting in a bipartisan way. The Civil Rights Bill was passed in the mid-60s with Republicans and Democrats. Social Security and Medicare, two systems that have helped many Americans, really came about in a bipartisan way,” LaHood said.
Bipartisan support could help the U.S. government emulate other countries and take the lead when it comes to supporting infrastructure investments. “That’s what is happening in Europe and China. If you go to China, you will see new roads, new airports, new bridges, new trains. Why? Because the national government has made a commitment to build infrastructure. And, when you build infrastructure, you create economic opportunities,” LaHood pointed out. And to produce similar infrastructure results in the United States, a viable source of funding is needed. One possible solution? LaHood supports a return to the Gas Tax, which funded infrastructure development in the United States for many years.
While this return may or may not come to fruition, the 2017 Tax Cuts and Jobs Act could help to accelerate investment in infrastructure and other commercial real estate assets, according to a panel session entitled Infrastructure and Opportunity Zone Investing. The legislation enables state governors to designate certain census tracts as “opportunity zones.” Investments made by individuals or corporations through special funds in these zones would be allowed to defer or eliminate federal taxes on capital gains.
“This model gained bipartisan support. So, now there’s an equity financial tool for properties and businesses that wasn’t on anybody’s radar before,” said Stephen Tomlinson, Partner, Kirkland & Ellis.
The basic premise revolves around getting “capital to go from where it is abundant to underserved communities across this nation,” said Aaron Betru, Managing Director, Center for Financial Markets at the Milken Institute.
CEO and Founder,
Institutional Investor Cooperative
As such, the bill could become quite effective, said Joe Azelby, Chief Executive Officer and Founder, Institutional Investor Cooperative. “This could become the most brilliant law in American history. It could get everyone to do what they do well and then get out of the way . . . The state governments, through the governors, pick the zones in all their states. The private sector allocates the capital. And, it's capital gains that have to be generated. So, unless you create value in the zone, you really wouldn't benefit from the program,” Azelby noted.
Indeed, corporations could play a significant role in investing in these opportunity zones as “they can now put up plants, facilities and other assets in these neighborhoods that have been largely ignored by economic players,” Azelby said. More specifically, the Act could spur investments in housing, infrastructure, data centers, wind farms and solar fields.
Tracking the trends that matterTo succeed, real estate investors also need to keep tabs on market trends. To this end, a panel that spoke during Aligning with the Business: What Occupiers Want pointed out that global occupiers are looking for real estate solutions that offer:
Technology. “The bones of the building need to be up to date technologically. Buildings need to offer things like fiber and the latest and greatest of smart building technology,” said Peter Barnett, National Real Estate Strategy Leader, PwC.
Coworking. Spaces that accommodate coworking are in high demand now – and will remain so in the foreseeable future. “In short, we don't think coworking is going away anytime soon. What will be interesting to see is how it weathers economic downturns. But we will definitely be using it in a portion of our business,” Barnett said.
Cool Locations. “Younger people today, that talent demographic that everyone is chasing, want to live and work in urban areas with a vibe. They want to be in a place with mass transit. A lot of them don't own automobiles. They want recreation and night life. Our office is in downtown Atlanta, just north of there in midtown section along the expressway. The big corporations are moving in there in a big way. Fifteen, twenty years ago those operations would have been out in a nice, sleek, manicured, landscaped technology park. Now, they want to be in midtown. That's where the action is,” said Jim Venable, Senior Vice President, CoreNet Global.
Accessibility. “Accessibility is number one. It doesn't mean that companies won't go suburban, but it has to be accessible through mass transit or roads that are not overly clogged. Employees will leave companies to go somewhere where it's five minutes closer a commute,” Barnett said.
Of course, occupiers’ needs continually change. “There is no holy grail workplace of the future. So, the difficulty is [trying to accommodate] five generations operating under one roof. Think about trying to build a house for five generations of your family and see if you can satisfy everyone. It’s very difficult to do,” Barnett said.
Avoiding potential pitfallsWhile investors need to be aware of opportunities, they also should be cognizant of any factors that could impede investment activity. For example, foreign investors need to comply with demands emanating from the Committee on Foreign Investment in the United States (CFIUS), which is designed to scrutinize foreign investments that might raise national security concerns.
While investors typically worry about the Committee standing in the way of various real estate investment deals, a better understanding of its function reveals that the group is not seeking to stop investors in their tracks.
Partner, Strook, LLP
Special Council, Strook, LLP
It is important for foreign investors to know exactly what CFIUS applies to. “CFIUS cannot review just any transaction. It traditionally has jurisdiction over transactions with foreign persons that could result in control of a U.S. business. In a real estate context this means that CFIUS could have applicability if there was a purchase of a controlling interest in an incorporated entity that owns and operates commercial real estate. It can also apply where there was an asset acquisition if enough of the assets were purchased, in terms of personnel, building, management, contracts,” said Anne Salladin, Special Council, Strook, LLP.
In real estate, the issues center around the proximity of assets to military installations, or other sensitive U.S. government installations. “It's about what you can observe. So, if there are activities that are being conducted in the sky next door, which a foreign person could observe, and those are particularly sensitive, cutting edge activities” that might catch the attention of the committee, Salladin pointed out. For example, when a Chinese controlled company tried to purchase wind-farm projects in Oregon, the committee brought the situation to the attention of President Obama, who vetoed the deal because it was too close to sensitive air space.
While it’s important to stay on top of political, market and government trends, investors should realize that success is a personal issue as well. Taking the time for some personal reflection could help investors ultimately become more satisfied with their careers, according to Arthur Brooks, Chief Executive Officer at the American Enterprise Institute.
Making it personal
“What can you do to engineer your own experience? That's my question for you today,” Brooks said. To ultimately navigate toward happiness in a real estate career requires some introspection, especially as professionals hit the twilight stage of their careers.
“You find that people in their 70s and 80s, who have done the most and had the most monetary success are most likely to look back with melancholy on their life. It doesn't seem to make sense until you think about why that might be. The reason is actually pretty simple. The physics of success, the higher you go, the farther down you come when your career starts to decline,” Brooks said.
Chief Executive Officer,
American Enterprise Institute
Instead of railing against change, people should embrace change and find ways to adapt. To start, investors should acknowledge that as they age, their intellectual capabilities shift.
“There are two kinds of intelligence. The first kind of intelligence is fluid intelligence. That's what you think of as raw cognitive horsepower. That's what made you great at your jobs when you were 25 and 30, and you were a big star. It was because of your fluid intelligence. It was your ability to learn things and to connect the dots, your ability to use high processing capacity to close deals, to get to the conclusion before everybody else did,” Brooks said. “Fluid intelligence declines precipitously after age 40. But here's the good news. That's not the only kind of intelligence. The second kind of intelligence is called crystallized intelligence. That's your stock of knowledge and wisdom that you can share. That's your teaching ability.”
In addition to jumping from fluid intelligence to crystallized intelligence, real estate professionals should start taking things away. “Success in the second half of life is like a block of jade. Your job is to find your true you. What do you need to take away this year? What do you need to chip away? Get out the chisel. What are the things and the relationships that are superfluous? What are the attachments and the beliefs that are holding you back?” Brooks said.
And, finally, professionals need to make sure that they concentrate on cultivating “relationships that matter the most in your faith and in your family and in your friendships, because this really is what your life is all about,” Brooks concluded.
In the final analysis, real estate professionals have the power to experience success. To do so, however, they must not let the chaos of the political environment, the uncertainty of the economy or their lack of self-awareness hold them back.