William Sankey, CEO of Northspyre.
At the beginning of the year, economic forecasters said a recession was 61% likely, and those odds have remained about the same in light of the recent banking turmoil. What does that mean for projects underway? What about new projects not already in the pipeline?
Many developers are turning to strategies from past recessions, but strong population and job growth suggest this downturn won’t be a 2008 repeat. It’s forecasted that commercial real estate development will remain more stable in the coming years, but volatility in the market has increased construction costs, slowed deal volume and made it difficult for many new developments to be financially viable.
Needless to say, these factors have kept project managers on their toes to maintain tight control of timelines and stay within budget. In my experience, the most savvy project teams know that failing to adapt and continuing to rely on dated methods to manage projects will hurt them in the long run.
I see three universal ways to reduce current risks and successfully weather a possible downturn.
1. Find ways to reduce human error.
In a down market, controlling costs and managing the budget is critically important, as small errors can result in significant financial impacts (i.e., death by a thousand cuts).
Previously, most development teams used emails and simple spreadsheets to handle everything from budget planning and cost estimates to cost flow predictions and document management. In turn, this made real-time budgeting across portfolios both difficult and tedious, but with economic uncertainty looming, I don’t think it’s worth leaving to chance.
Now, I see more top developers using smarter technology to not only organize their data across their portfolio but to get real-time updates on costs. Their evolving approach to real estate development eliminates guesswork and simplifies budget management. This paves the way for more reliable and repeatable returns that can make you stand out from the pack when seeking investors.
2. Maintain institutional knowledge and keep your teams focused.
Losing employees is always difficult. What’s more difficult is when former employees take the secret sauce to project success with them and stretch your remaining staff too thin.
I believe these concerns can be remedied by using enhanced workflows and a centralized platform. Cloud-based platforms can help organize all previous project information, including contacts, files, reports and even notes and images. This allows entire teams to access crucial information that would have been lost with a project manager resigning or being let go.
Not only do cloud-based applications help teams stay better connected, but platforms that organize all of this data can also remove menial and tedious tasks like document uploads, which in turn allows your team to spend their time on more valuable project work to help increase returns. During a recession, streamlining and automating can make all the difference.
3. Proactively forecast for big returns in down markets.
Development projects that kick off during a down market can yield some of the highest returns. Land acquisition prices are lower, giving keen-eyed developers a strong opportunity on investment properties. The challenge in capitalizing on this is accurate forecasting.
Many developers looking to generate the highest returns see recessions as an opportunity to drive creative projects that will become landmarks in the future. These same developers are often able to take advantage of advanced budgeting tools that help them proactively forecast based on everything from market conditions and location to property type and size. Using these tools, savvy developers can find and choose locations faster and know what to expect with their budget and timeline.
I believe that the companies that will succeed in a down market will be those that succeed in any market. They will adapt and use emerging technologies before their competition to grow faster with less overhead, fewer overruns and fewer headaches.
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