Five Essential Ingredients of Innovation Excellence

Five essential ingredients of innovation excellence are 1) giving employees something to believe in, 2) embracing vision and protecting ownership, 3) nurturing receptivity, 4) championing connectivity and forcing transparency, and 5) building a positive environment and being generous with genuine accolades. Successful, remarkable companies understand inherent instability is necessary to remain the best in the industry. Taking the perceived “safe route” or trying to avoid every potential pitfall is actually the riskiest route to take in the long run. You can’t be a follower and just keep riding the same old engine down the track, because in reality there is no engine and there is no track. That is not to say that every project needs to be reinvented from scratch, it’s just that your products needs to stand out and be fresh - and achieving that takes a specific culture. Innovation and change are necessary elements of success – it is what Pixar’s founder Ed Catmull calls “organizational quaking” in his interview with The Economist.

1. Something to Believe In
To be motivated and effective, people have to know in their heart that they matter and what they are doing matters - they have to believe in themselves, their contributions, their colleagues and the company. Leadership can’t just tell people “they matter”. The proof will occur through the everyday actions of the group. The most successful organizations leverage the skills, thoughts, and life experiences of all the people in their organization as well as those in their vendor and partner organizations. Creating a dynamic where everyone is part of the process, provides honest input, and contributes in a positive way takes a positive corporate culture - within a framework of scalable, repeatable, continuously improved processes and systems.

2. Embracing Vision and Protecting Ownership
Creativity, particularly the vision of those in defined value creating roles, has to be protected. Decisions need to lay with the creative person. While, the process draws on the resources of the whole organization, hijacking the vision and the decision process will lead to a lack of ownership and at best, long term mediocrity. Patronizing lip service to empowering people breeds disengagement. No one in the organization should be able to go around the creative person or tell them they have to do something a specific way - or eventually there will be no process and the decisions will be left to puppeteers to make on their own without the support of the group. Are things really going badly enough in the process that someone needs to step in? Have all attempts to provide honest and constructive help to the team been exhausted? If so, before attempting to take over the minutia of the decision making, leadership ought to consider replacing the visionary.

3. Nurturing receptivity, reciprocity and honesty
Individuals not only have to be receptive to the input and assistance of others, they have to actively seek it out. By nature, people are hesitant to both seek and give honest and heartfelt advice, feedback and assistance. An environment needs to be nurtured where people trust that what they have to say is honestly valued and respected, that people won’t be offended, that they won’t be belittled or ridiculed for their opinion, and that they won’t look dumb for bringing something up. At the same time, group meetings where people “perform for the audience” rather than honestly contribute to the success of the effort have to be minimized. There also has to be reciprocity – a belief that others will act positively to help them, just as they are helping others - without expectations of net gain. This is not group think or paralysis by analysis – there is a defined decision maker who is responsible and who moves forward after thoughtful consideration of the input. Keeping score or owing each other favors is a negative culture to be avoided. Reciprocity has to be a commitment to give more than you receive and to place the interests of the group above your own without the culture of, “what can you do for me”? The Go-Giver, a book by Bob Burg and John Adam Mann is a great story about receptivity, reciprocity, and giving.

4. Championing Connectivity and Forcing Transparency
In order to be a part of everyday successes, people have to be connected and they have to know what is going on. If meetings are the primary means of people staying informed and connected in your organization, you have a steep hill to climb and you may want to read some of Seth Godin’s work. Communication, information and decisions have to move at lightning speed.

Continuous improvement necessitates looking back (as well as forward) and transparency is a prerequisite of learning. Everyone would rather accentuate the positive and talk about success rather than talk about the things that went (or are going) wrong. It is important to recognize contributions and shower praise where appropriate. However, some things always go wrong, and it is important to talk about key issues in a constructive way in order to move forward. Mistakes are repeated, and problems fester, if you don’t own up to them and address the causes. Don’t dwell on it, but force people to discuss what goes wrong rather than brush it under the rug. If you avoid the hard conversations, people are incrementally less forthright in the future, pushed towards conservative approaches, and disenchanted. Catastrophic failure is often rooted in a series of mistakes that go unaddressed or unacknowledged, whose cumulative effects are therefore unseen until it is too late.

5. Building a Positive Environment
People who know what they are doing matters, who are engaged and connected in an organization that protects creative vision and honesty are going to be highly motivated. A major premise of the book the Fish Philosophy by John Christensen is “There is a choice about the way you do your work, even if there is not a choice about the work itself.” Positive attitude at a basic level is a prerequisite to success as described in this well written book; but unleashing organizational potential requires standing out, distinguishing the organization, and being innovative. Inspiring and empowering people within the framework of your business model does involve choice about the work itself.

References:
The Go-Giver
Fish Philosophy
Why Should Anyone Trust Your Vision
Seth Godin's Blog
Pixar founder Ed Catmull interview

Talent - An Opportunity or a Crisis

Chris Lee forecasts a real estate industry talent shortage and discusses coming human resources challenges and compensation strategy in his most recent newsletter. Set aside initial reactions to a forecast of “talent shortages” today; and think hard about core competencies, internalization and real understanding of goals and culture.

In pursuit of cost containment (and often times mere survival), the multifamily industry has obviously gone through significant staffing cutbacks in the past two years. “Bench strength” within individual organizations is something to start considering in light of the business climate being forecast for the next few years. Arguably, there still is a lot of available and/or underutilized talent in the market. Companies are upgrading talent, retooling retention plans, revising compensation programs, and looking at their future staffing needs and with that process will come turnover as the market improves. Companies that are leveraging strong scalable, repeatable processes and systems will be better positioned to deal with the dynamic environment. However, the costs of loss of momentum, continuity and institutional knowledge can still be high. Leadership continuity, building talent within, retaining managers, replacement planning, and succession need to be actively managed and focused on for future success.

See CEL and Associates Inc’ Strategic Advantage Newsletter “Talent…Opportunity or Crisis” at http://tiny.cc/a3qk7 For tools, guidance, and an in-depth look at ensuring leadership continuity and building talent within see the book "Effective Succession Planning", by William J Rothwell.

Multifamily perspective on the News

At the MFE conference, CEO's and executives were VERY bullish on 2011 for the multifamily industry. The Fed plan to fuel inflation, world posturing on Chinese currency valuation, off shore drilling regulations, GDP growth are all in the news - what does it mean for the multifamily industry?

Realistic Pro-forma Hurdle Rates. When historical new development hurdle rates (150 to 200 basis points over sales cap rates) start making new multifamily development pro-forma’s pencil out, a surge in new projects is expected. In today’s environment with sub 5 percent cap rates in many markets and significant levels of uncertainty, listening to the September 2010 NMHC Apartment Strategies Update raised the question, are those hurdles appropriate? The approval process, construction, lease up, and sale of a new property can take years and are the expectations for the future multifamily market, the associated risks, and the interest rates (a few years from now) going to be better, the same, or worse than past history?

Supply and Demand Look Good. Demographics, declining home ownership rates, decoupling, and a dearth of new construction starts are obviously in the multifamily industry’s favor from a simple supply and demand viewpoint. Multifamily vacancy rates have been declining throughout 2010 with RECORD BREAKING net absorptions, concessions burning off and rent increases starting in many markets. These fundamental indicators depict the best conditions in decades are within reach, but is the pace sustainable?

Unemployment’s heavy weight. Consistent GDP growth in excess of 3.3% is necessary to just keep unemployment from growing due to population growth. GDP growth in excess of 3.3% does not look realistic in the near term, so real unemployment will continue to rise. Government spending will not help. The key term is “growth” and unless the amount of money spent grows every quarter, GDP growth does not go up. So, stimulus money is not going to improve the situation (even with the “other half” of the stimulus that has yet to enter the economy). Unemployment data, (as manipulated as it is to hide the true extent of unemployment), is not going to make many people FEEL like progress is being made for some time – even after progress is made. The Fed's stated intentional pursuit of higher inflation to generate job growth is a risky plan which some experts give marginal chances of succeeding (Greg Weldon places the odds at 2:1 against success). Two key questions are how does continued high unemployment (and other factors) effect the notion of job security for those with jobs, and what are the resulting long term implications for consumer spending (the true driver of the economy)? Multifamily cycles are normally closely correlated to employment, but so far in 2010 the unemployment data and industry performance have diverged. The growing population still needs housing.

Negative Consumer Psyche. There are the obvious weights on American consumers that continue to get news coverage. Debt deleveraging and foreclosures get the most press. The anchoring of homeowners in place by not being able or willing to sell their homes is another drag. The situation with home foreclosures got even murkier at the end of September with foreclosures slowing to a crawl from revelations of “robo-signing” foreclosure documents by GMAC (Freddie Mac’s processor), B of A and JP Morgan. Many others are privately scrambling to clean up their processes. The long drawn out process will get worse as class action lawsuits are filed and state attorney generals file their politically motivated lawsuits. Extend and pretend, strategic defaults, and lawsuits can’t last forever, but bad real estate loans and foreclosures are going to continue to be in the news and a drag on lenders books and the American psyche for a long time to come. Strategic defaulters will continue to live rent free, potentially bad news for multifamily.

Politics is Adding to the Problem. The current political environment and election cycle is the source of much uncertainty and divisiveness. In broad terms, pride and confidence (or lack thereof) in the American system is reflected in congressional approval ratings. In terms of regional markets, how cyclical is multifamily going to be in the future as a result? The metropolitan Washington DC area for instance has enjoyed a recent boom, which many are rushing to take advantage of. If the movement to reduce the size of government gains traction, what multifamily market effects will be felt in Washington and other metro areas around the country that are highly dependent on government? How drastic are the swings going to be? What impact will it have on subsidized housing in general? High barrier to entry markets are less susceptible to huge swings over time, but even they are vulnerable in the current market. Set the scare tactics aside - turning back spending is tough, but will the 2010 mid-terms bring more or less uncertainty?

Energy Policy Uncertainty - More Weight The end of September also marked continued PROCLAIMED uncertainty with regard to energy policy. Interior Secretary Salazar actually released the following statement, “over the coming years you can expect a dynamic regulatory environment as we continue to raise the bar for offshore oil and gas development.” In an industry requiring billions of dollars in investment, introducing that uncertainty is mind boggling. Without clarity of what the regulations are and without drilling leases that can be relied on, expect dependence on foreign oil (and energy prices) to rise significantly. On October 1st, the EPA announced it is developing proposed higher fuel standards for cars, but with scant details. They added more uncertainty with estimates of the standards ranging from 35 MPG to 62 MPG by 2025. Is it coincidence that the drilling and fuel standards announcements were within a week of each other? Although cap and tax looks politically unviable, gasoline prices in the range of $4 to $5 per gallon by 2012 (as John Hofmeister predicted this past week) may not be far off. While, there would be clear winners in the multifamily industry with high gasoline prices, the impact on the overall economy and industry would definitely be negative.

Access to Capital Low interest rates and the GSE’s (Fannie and Freddie) have played pivotal roles in multifamily lending (and value), but can developers rely on these factors in their pro-forma’s in years to come? Is uncertain availability of funds the new normal rather than a brief aberration of the financial crisis? Talk continues about unraveling the GSE’s, but that would involve owning up to the true value of all bad loans – a doubtful scenario. Still, there is a lot of questionable multifamily debt that requires refinancing in the coming few years and a slow market rebound will bring troubled times for some.

Let’s Blame Someone American’s love villains, and Congress took time in September to play to that sentiment by pointing a finger at China. Recent commentary regarding the valuation of the Yuan and the notion that manufacturing would somehow come back to the United States (rather than migrate to other developing countries) if the Yuan was “fairly valued” are perplexing. That door shut long ago when Americans’ determined, for good or bad, the benefits of low cost goods trump the benefits of “buying American”. Don’t look for the cost of Chinese products (there are more of them than you think in new construction) to suddenly jump, although expect a gradual appreciation of a few more points. Keep an eye on the Fed's related attempt to make inflation kick in though.

Tax Rates and the Deficit– Do They Matter? Congress left for recess without deciding what the tax rates would be for next year. By the way, the government fiscal year ends in October. Increasing percentages of tax revenue are used to pay interest on the debt. The problem is getting worse now that the Social Security system needs the Federal Government to start paying back all the money it borrowed from the “Trust Fund” (different than just paying interest). Perception is reality, and tax rates matter for their impact on the American Psyche as well as their direct economic impact. As to the impact of government spending, go back to the discussion of GDP growth and think about the word growth. Government spending simply cannot grow every quarter.

A Final Word The 2010 multifamily vacancy and absorption trends are welcome news for the industry. Real Estate has always been about location first and the conditions, perceptions, and psyche are different for each sub-market. Continued cautious optimism appears to be today’s wisest path. Timing will be key. After laying dormant for most of 2009, in select markets we are starting to see a surge in new construction of A product that is expected to gain steam as more pro-forma hurdles are met. Conversely, many renovations continue to be on hold, so when will we see a significant rise in rehabs? As the concessions burn off and rents tick up in the A product, at what point will adequate returns for specific improvements be possible at existing, older stabilized communities? In the “new normal”, are rehabs more or less risky than new construction and what are appropriate rates of return? These are questions we will explore in a future post.

Fair Housing Lawsuits Continue

In September, the Justice Department filed a lawsuit against Post Properties for failing to comply with the Fair Housing Act. They allege a failure to comply with accessible routes; narrow doors and hallways; kitchens and bathrooms that lack accessible clear floor space; and thermostats that are mounted too high to be accessible to a person using a wheelchair.

The Fair Housing Act applies to buildings first occupied as of March 13, 1991; yet the multifamily industry still suffers from designs that do not follow the guidelines. It is still the exception, rather than the rule, that a set of plans for new apartment construction that I review comply with the Act. The most common errors are bathroom door widths, shower clear floor areas, range clear floor areas, turning circles at U shape kitchens, minimum clearances between opposing counters and refrigerators, and clear floor areas at kitchen sinks. Every developer needs to have thorough reviews of their plans done for Fair Housing Act compliance and not simply rely on the project Architect.

See the Post lawsuit at http://tiny.cc/dnti8

Marketing at Apartment Entries

Drive by is a huge component of leasing traffic in the multifamily industry; yet apartment community signage, entries and curb presentation often look generic, indistinctive, and tired. Significant money is spent marketing multifamily properties, while signage that is potentially viewed by thousands of prospects everyday is left to blend in to the background – weathered, un-refreshed and looking the same way for months and even years. Your efforts should go way beyond periodic replacement of the flowers. Does your multifamily community entry positively contribute to property branding, catch attention and generate prospects the way it should?

1) I always wondered …? If you don’t have the words “apartments” or “rental” in LARGE READABLE FONT at your entrance (preferably on the monument sign) you are throwing away leads by the truckload.
2) Temporary “Now Leasing” signs If your city allows temporary signs, get a permit and put one up. Even if they don’t allow “temporary now leasing signs” they may allow “new management” or “newly renovated” or “special sales event” or some other sign variation you can put up that will draw eyeballs. If there are broker signs on commercial space in your City there should be a way to get a “now leasing” sign approved. If you already have a now leasing sign, think about refreshing it and moving it.
3) Open House signs aren’t just for single family? Many Cities allow bootlegs at least on the weekends or during certain hours. Putting them up and taking them down around town isn’t so bad if you plan for it. People do notice them, because they are just up for a brief period of time they look out of place (a positive thing). Hand written bootlegs with minimal information (2BR/2bath $650/month call 555-333-1212) work too!
3) Who moved my Cheese? Variety catches eyeballs and makes impressions. After driving by a couple of times, people only notice what is new and distinctive – they automatically filter out what they saw before and let it blend in. Tired banners in the same place everyday are not going to attract much attention. Move and change up things – whether it is sandwich boards, bootlegs, temporary leasing signs, flowers, flower pots, tag lines on signs, balloons, banners…move them around and change them. Keep it classy though. If you have more than one property in your portfolio, some of the props can be moved between properties for variety.
4) What the … ? Be different and unconventional to attract eyeballs and develop a sense of community. Talk to local businesses and vendors for “no cost” tie-ins. “Our Next Resident Event” opportunities abound. Plan a resident trip to an NHL hockey game and talk to the team's marketing department about lending you an eye catching display for a week. Park a limo out front for a day if a group is going to a concert, plan a trip to a classic car show and park an antique out front, Christmas in April display...movie night at the pool...you get the idea. Showing off your features or amenities is another option - if you have granite tops in your units, put a slab of granite out (with a sign). If you have a tennis court, talk to your local tennis shop about a promotion (ours has a mobile store they take to events).

Even if your entry design is pathetic and you don't have a budget, there are a lot of cost effective things you can do. Let me know your ideas! I am also working on a series of posts on entry sign design that will include video slide shows. Send me pictures of entry signs at Bfrn84@gmail.com and I’ll try to include them!

Awareness and a “Way Of Being”

A woman walking down a busy street, talking on her cell phone, was oblivious to her surroundings on Saturday. She stepped off the curb to cross seven lanes of traffic, just as the light turned green. The driver in the third lane was not paying attention and barely managed to stop as the pedestrian literally jumped out of the way. Despite being only half way across, the pedestrian continued to hold her phone to her ear, look over her shoulder, and make angry gestures at the driver that almost hit her as she blindly forged ahead. Ignoring the perils in front of her, she was running past moving vehicles while still looking behind her!

The incident spawned thoughts on a number of different levels and inspired me to look up an old article on leadership written by Jack Welch. The former CEO of GE discusses several categories of poor leaders including (among others) the know-it-alls, the distant and disengaged, and the just plain jerks and concludes with, “part of being a lousy leader, no matter what the category, is lack of self-awareness.” Being a good leader starts with self awareness and so does being a happy, successful (insert your own definition of “success”) and responsible person.

We make decisions everyday, which by degrees become habitual and automatic, about whether to respect the interests of others’ and try to add value to their lives (with no thought or expectation of reward) or to be selfish, rude and follow the creed of “self first, self last, anything left self again.” Those decisions become part of you, a way of being, which is insightfully illuminated (positively) in the book by Bob Burg, “The Go-Giver”.

The choice is ours whether to be unaware, preoccupied, self absorbed and angry with the past or forward looking, happy and enlightened to the potential the future may hold. “The more we expand our focus to include others' interests alongside our own, the more securely we build the foundations of our own happiness.” While, this quote is by The Dalai Lama, it is a non-secular universal concept.

So, what lessons did I teach my kids, who witnessed it all and summed it up with “she is an idiot”? It was foolish of her to not be paying attention, rude of her to expect that the world revolves around her, and most importantly sad that she chose to blame others and focus on the past instead of admitting and learning from her mistakes and moving forward in a positive way. Be aware of what is going on around you and be self-aware of how others view you. There are lessons here for everyone - professionally (whether in the multifamily industry or any other) and personally. In case you are wondering - we were not in the third lane. We saw her swaggering down the street when she was still ten feet from the curb.

For related content see Jack Welch article at http://tiny.cc/r6z0f
Dalai Lama video on awareness of inner values at http://tiny.cc/89qh3

Multifamily Monument Signs

Apartment communities make significant investments in monument signage as branding and drive by are so important, but are you maximizing the potential of your signage? Don’t let your signs go to waste. Take a fresh look at your signage today and see what you can do to improve it.

Study of current cap rates for multifamily sales

CB Richard Ellis released its first half 2010 study of cap rates. This report highlights investment trends for all property types in each of the key markets across the US. For this survey, CBRE Capital Markets professionals provided their estimation of current cap rate ranges and investor activity in their local market. These cap rates are based on recent interactions that CBRE professionals have had with active investors in their market. See the study at http://tiny.cc/si5d8

Multifamily Granite Counter Investment Decision

Granite counter tops in rental communities provide a valuable competitive advantage in attracting and retaining residents - while adding lasting value to your property. Real granite counters yield over a 20% return on investment over laminate and cultured marble tops with a rent premium of as little as $4 per month. For example, at an 8% cap rate $4 per month in rent equals $600 in real property value ($4x12/.08). If laminate/cultured marble counters cost $275 per unit and real granite counters cost $750, the incremental rate of return is (600-475)/475 or 26% based on only $4 extra per month in rent! At a rent premium of $25 per month the investment is paid off in 19 months and the return on investment (689%) is substantial. Using the same figures, at $25 per month the return on investment for a 306 unit property could be over $1 million (306 units x($25x12/.08-$475)). Obviously, pricing varies based on unit layouts, project size, project location, schedule and materials selected. Whether renovating a whole property, creating 50 premium units, or building a new property, contact The Baypath Group for details at www.TheBaypathGroup.com

Customer Service, Loyalty and a Nine Year Old

Last summer, my family and I stayed in several different hotels. While travelling for a wedding, we had the good fortune to stay in a hotel that was open less than a month. It was a luxury hotel with impeccable service and was an amazing experience that we only booked due to “pre-grand opening” pricing. The ninety year old hotel that we stayed at the next night, which had a tough act to follow, is what this story is about.

We arrived at the older hotel on a rather depressing day of wind driven heavy rains. Our first impression was of a nice looking, tall, narrow portico that wasn’t large enough to fully protect us from the elements as we came to a stop. However, as I placed the car in park, two young men were already positioned with large umbrellas to usher us into the lobby unscathed by the weather. The lobby was a celebration of the hotel’s history, with beautiful hardwood floors, antiques and oriental rugs. The focal point of the room was a large beautiful welcoming dog, quietly sitting on his bed and wagging his tail. On a small blackboard next the dog, written in chalk it said the dog’s name and “I love to be pet.”

One of our “umbrella escorts” continued pleasantly chatting with us as we walked into the hotel. Intertwined with an introduction to the dog, and introductions to another family petting the dog, was some information about the hotel as well as a genuine interest in us and our trip. The other escort went straight to the front desk and then returned outside to get our luggage. When we approached the desk to check in, the clerk greeted us by name (which umbrella escort number 2 had casually informed her of while we were being entertained by our main escort and the dog). The room key was ready, and we were politely shown where the elevator was and given instructions on how to get to our room.

After looking around a little, we found ourselves alone in a rather old elevator, talking about what a nice hotel it was, the personable staff, and how we felt comfortable and welcome. It isn’t easy to pull off antique and quaint without it feeling old and stuffy. Nor, is it easy to make children feel welcome in a place that conjures up thoughts of museums and libraries when you step though the door. So far, I am impressed.

When the elevator opened up on our floor, the reality of the hotel’s age was striking with the narrow hallways and I started to become a little anxious about our room. As we approached our room, our main escort appeared from an unseen freight elevator with our luggage in tow. My wife and I looked around the room, while our escort was chatting with our nine year old about our trip and a really neat old candy store in the area. The room was much like the lobby with hardwood floors, nice rugs, and antique furnishings. It was larger than expected with a nice sitting area. I thought the room was a nice surprise and was taking a look at the large bathroom with a Victorian claws foot tub and stylish mosaic tile when our nine year old spoke up.

He addressed our escort by name and then said, “this is a nice room, but I don’t want to stay here.” As we attempted to apologize, the escort did not hesitate. Kneeling back down to my son’s level, he asked what he liked most about the best hotels he stayed at. Being a nine year old, he said fluffy covers, flat screen TV’s and mini-fridges.

I have never asked for a different hotel room, but the escort wouldn’t hear of our protestations at moving. He strongly suggested we look at another room before deciding. He asked if we would prefer a room with modern furniture over a room furnished with antiques, and we admitted that we would. He also asked whether the view or floor were important to us. Our escort then told us to relax, not unpack anything, and he would be back in a few minutes with a key for a room where we would all be happy. I expected him to go all the way down to the front desk and be gone for a while. However, he was gone less than two minutes. He just went down the hall to talk to the staff privately. He escorted us to a different wing of the hotel that was recently renovated, where we passed the other umbrella escort in the hall. He greeted us, discreetly handed our main escort a key, and left without breaking stride. We were treated to a different suite with a flat screen TV and a kitchenette complete with a kitchen table in place of the quiet seating area. He apologized profusely that he and the staff did not find the right room for us the first time. It seems my interest in an antique desk in the lobby was interpreted to mean I would enjoy staying in a historically decorated room.

In some respects, “service” is more straightforward at a newer property. Guest expectations are predictable and first impressions get things off to a good start. At the most basic level everything is shiny, new, and spotless. There are less maintenance issues to be concerned about and it is easier to maintain a positive environment than to build one from scratch or from a deficit. The property design itself is more modern and typically has features and touches that are not present in older properties. The location is even likely to be more conveniently located to newer restaurants, shopping and high growth corridors at a newer property adding appeal to the overall experience.

Here was a staff that went out of their way to help us, make us feel comfortable, and at home. The staff warmly greeted us by name throughout our visit (including the maid that serviced our room and the phone operator). “This is Cindy, how can I help the Francis family” is a little more personal than answering the phone “operator”. They even asked if we needed recommendations for dinner in a way that made you know they wanted to help. They were genuinely helpful (not just going through the motions of sucking up in hopes of a tip). There was no rotating fabricated touch points where a valet and two different porters are involved (all expecting tips) as you check in or out. Interruptions where answering the phone take precedence over the guest standing in front of the staff just did not exist like they do at so many hotels.

When we checked out, a map and directions to our next destination were slipped under our door with the bill. We didn’t ask for the directions. When we first arrived, our umbrella escort listened, knew where we were headed, and that we had not been there before. We enjoyed our stay and continue to stay with that hotel chain whenever we can. We also have encouraged countless others to stay there. Not everyone executes as well as the oldest hotel in the chain, but we have never been disappointed.

Pixar founder on effective teams, management and success

Ed Catmull the President of Pixar gave an amazing interview to The Economist that is worth watching below. Creating and protecting dynamics where honest constructive feedback is not just nurtured, but demanded from everyone he says is essential for Pixar’s success. It doesn’t happen on its own, but a culture where everyone is expected to contribute and not hold back regardless of whether you are talking to John Lasseter or anyone else in the organization is needed to make things work. His comments about organizational quaking rather than solidity being a positive thing are also insightful.

Perspective, Focus, a Gorilla and an Elephant

I recently viewed, as thousands have, the “invisible gorilla test” on YouTube. The headline in the accompanying story was “How Little We Notice”. For those of you that have not seen it, they pass a ball around and ask you to count the number of passes while unexpected things happen right out in the open. Suffice it to say, that while the sample size of their study did not appear too scientific, a lot of people miss the unexpected things in the background. Interestingly, “what I noticed” in the article was it did not mention or analyze who correctly counted the passes.

The video reminds me about research that used imaging technology and mapped how the brain makes decisions. The short version being that when faced with alternatives, everyone goes through the same process where they compare usually two, but a maximum of three, alternatives at a time. While we think we are choosing between ten menu items or granite counter colors we are actually making a series of individual comparisons of one item to another.

We also all subconsciously make thousands of filtering decisions. Should we listen to the air conditioner fan, the buzzing light, the soft music, the person in the office next door, the person on the phone with us, or the person who walked in and asked us a question? We disregard the fan, the light, the music, the person in the office next door and a whole host of other things as unimportant. If we focus, we might be able to understand both the person on the phone and the person who just walked in and asked us a question.

An awareness that we are all predisposed to focusing on task (or choice) A and B to the exclusion of all else is important. There are times to concentrate and be hyper-focused, but they need to be tempered with big picture awareness. Not everyone is blessed with the innate ability to timely shift from one (attention to the correct details), to the other (good broad perspective) in the span of microseconds and be spot on every time, even if you are.

The right perspective is the key. Keep an open mind; but if the color of the curtain, how many people are in the video, or somebody dressed up as a clown or gorilla are not important in the context of what you are trying to accomplish, by all means filter them out and focus on what is important. If you can manage it, be aware when you are engrossed and filtering, so you can appropriately and timely re-engage. It would be wise though, not to ignore an elephant in the room.

Cornerstone Strategies for The Multifamily Industry

Managers at all levels of Multifamily are faced with strategic decisions and Chris Lee discusses some key considerations that are applicable to individual managers as well as firms. See the entire article at http://tiny.cc/x58f5

Process Matters

Individual successes are measured by getting the job done, accomplishing assigned tasks, and executing. Long term organizational success though depends on being able to leverage those individual successes through the execution of scalable, repeatable, definable processes and systems. Through leveraging institutional learning, the organization is able to incrementally improve efficiency and performance.

Organizations that do not follow effective processes are typically marked by indecisiveness, poor continuity, ineffective forecasting, inadequate visioning, misunderstanding of core competency, and lack of effective focus on critical tasks (among other difficulties). While, there may be talented people in these inefficient organizations, the potential of those talents is not fully utilized. Individuals are constantly faced with “reinventing the wheel” and do not have effective mechanisms for tapping into the vast knowledge and experience of prior organizational learning (or even of others currently in the organization).

This is not about defining procedures. Improving processes through lessons learned (better ways of doing business) is essential. To sustain strengths and improve weaknesses an organization needs to actively seek better ways of doing business. For the organization to be able to extract those lessons from team members there needs to be 1) an environment that truly values team accomplishments as well as individual contributions, 2) a culture where team members believe their input matters and 3) trust and respect that the identification of lessons (that may reflect past failures) will be rewarded rather than punished. Note that learning and incorporating lessons into the process requires more than simply identifying the potential lessons.

“Best Fundamentals Ever” for Multifamily

Apartment REIT second quarter results and MPF Research data suggest that the corner has been turned in the rental market (1). REIT’s and analysts alike have given very positive outlooks and the REIT’s have even started to move forward on new development projects. The supply-demand fundamentals are strong in the coming years with positive demographics in the prime rental ages (the Y generation is 80 million strong), high college graduation rates, and virtually no new completions or construction(2). Equity Residential’s CEO even goes so far as to say the apartment industry is already entering the best years the apartment industry has ever seen(3).

If you are an Apartment REIT with access to capital, gearing up for new development (as it looks like they are doing) is probably a good strategy. After all, it usually takes 12 to 18 months to start delivering new apartments and the supply side will continue to be constrained. The rest of the industry is still faced with hurdles regarding access to capital and the negative feedback loop regarding job growth, the shadow market, and immobility.

In the past, job growth has been highly correlated with occupancy and rents and yet recent improvements in apartment fundamentals have not followed the trend in government reported job statistics. Why do Apartment REIT results conflict with the job reports? I haven’t seen a solid explanation yet.

There are a lot of factors in the current economy that were not present during previous cycles that may explain some of it and there is some skepticism regarding the government’s statistics. Also, there is a lot of “noise” in the job statistics from events like the census, the oil leak, seasonal adjustments and under-reporting of small businesses. National statistics may not translate well into neighborhoods where there could be pockets of improvement either. Anecdotally, young renters are likely highly motivated to find ways to get out of their parents house, reduce the doubling and tripling up that they have done over the past few years or form their own household.

In the past, home ownership rates were highly negatively correlated with the number of renters. As home ownership rates continue to decline today(4), there are differing opinions about what that means for the Multifamily Industry. The single family market continues to implode and concerns remain over what that means for the economy at large, future job growth and the shadow market. Strategic defaulters remaining in their homes rent free, vacant homes that have been foreclosed, renters wary of homes that could go into foreclosure, and a frozen market where homes are more illiquid than ever (and people are more immobile than ever) are all factors that are difficult to analyze. The most obvious impacts of continued troubles in the single family market are the continuing negative effect on capital availability and concern we will be dragged into a double dip recession.

So, what does it all mean for new multifamily development? It looks like the REIT’s may take advantage of their access to capital to get a head start on what looks to be promising years ahead. Much of the rest of the industry is likely to be mired in the mud on the side of the road until the rents improve significantly, capital becomes accessible, and they can move forward "opportunistically". There will be some though, who have followed distinct strategies and positioned themselves well to take advantage of the transformational change that is occurring - and will be able to "dip" their toes into new development along with the REIT's.

One last statistic to consider: Architectural Billings for multifamily have dropped from December 2009 through May 2010 as follows 51-50.1-47.3-47.3-45.8-46.9 with anything under 50 indicating a decrease in billings. Maybe, there isn't much to read into that as the only ones with access to capital are basically REIT's, and mutifamily billings for architects are generally pretty lumpy.

Related Articles:
(1) Wall Street Journal article: http://tiny.cc/77xg3
(2) CEL Associates has demographics at http://tinyurl.com/252v9ro
Harvard State of the Nations Housing 2010 http://tiny.cc/6eemy
(3) Equity Residential CEO interview at http://tiny.cc/x1x3i
(4) The Housing Collapse Intensifies: http://tiny.cc/12b0z
(5) Apartments Stage a Comeback Reis research supported http://tinyurl.com/295xk26

What's the Most Popular Countertop for Kitchens?

quoting Consumer Reports.org (Kimberly Janeway)

“We plan to replace our kitchen counters and are interested in using stone. Is granite still a hot choice?"

"Granite remains the biggest seller, having accounted for 56 percent of kitchen-countertop sales in the past year, according to the NPD Group, a market-research company. Quartz (Caesarstone and Silestone) and laminate (Formica), each with 13 percent of the countertop market, trail granite in popularity, followed closely by solid surfacing (DuPont Corian)."

..."Granite earned its spot as the most popular counter courtesy of its good looks and durability. Indeed, in our countertop tests, granite was the only stone that could resist heat, scratches, and, when properly sealed, stains.”
(See entire article at http://tiny.cc/jpdpu)

For a typical apartment community, granite offers great return on investment for as little as $5 per month in additional rent for each unit. See www.TheBaypathGroup.com for details.

critical thinking leads to sound decisions

As information and change increase exponentially in today’s digital age, critical thinking is more important than ever. Critical thinking is more than just questioning and reasoning. Taking into account the context and sources of information, the limitation of your understanding and knowledge, and recognizing and questioning assumptions are the first steps in critical thinking.

Interpreting and evaluating arguments and evidence with a healthy dose of analytical skepticism; the questioning of accepted norms; an honest and open evaluation filtered for bias, predisposition, and relevance; the balancing of uncertainty and weighing of data and alternatives; effective communication; and the prioritization of effort also play essential roles in critical thinking.

Of course, coming to logical conclusions must be followed by carrying out solutions and continuous refinement (or reevaluation) as additional relevant information becomes available.

The distillation by this blog has broken a tenet of critical thinking (avoiding oversimplification). Seize the opportunity to expand your knowledge. There are some 142 million Google hits for “critical thinking”, hundreds of books, and numerous courses available – give it some critical thought.

Here are three related documents you may want to ponder:
1) 4 indicators your firm isn’t critically thinking: http://bit.ly/bQG4gf
2) Creating a sound decision-maker: http://prosfromdover.wordpress.com/
3) Critical thinking is the most important skill employees need in the next five years http://alturl.com/pkot

Charlie Brindell's 'Dumb Tax'

Are you paying high 'Dumb Taxes'? Charlie Brindell, the CEO of TCR, was quoted recently by MFE as saying “If you try to build an organization as opportunities are emerging, you will inevitably stumble, you are going to spend a lot of money and pay a big ‘dumb tax’ if you don’t have people who know and understand these markets.”

Charlie Brindell obviously wants to tout TCR’s expertise in core markets,potential efficiencies, breadth, and organizational structure. However, his general notion of a “dumb tax” in reference to efforts that do not take advantage of the leverage of institutional knowledge, experience and learning curves is something everyone should think about in broader terms. Dumb taxes are prevalent in the industry – some can be abated and others are difficult to avoid. While, circumstances sometimes dictate organizations venture 'outside the box', some have gone so far outside they have lost sight of the box and forgotten what their competitive advantage is/was. While determing your strategic direction, don't forget about the 'Dumb Tax' (or where your box is).

Real Estate Outlook

Chris Lee’s June 2010 two part analysis of the key issues transforming real estate today, and his predictions about the future, provokes strategic soul searching. The facts speak for themselves, and Chris presents a lot of facts. There unquestionably is a lot of uncertainty today, not the least of which is timing, but the next 10 years present opportunities as well as challenges.

Cut and past into a new tab:
See Part I at http://tinyurl.com/252v9ro
See Part II at http://tinyurl.com/235vblr

Risk Management – Embrace It

Do you know where the deep sea drilling rigs in your industry, firm, and career are even located or do you “feel like” you manage risk well? Risk is a part of life and in the tedium of daily routines and the work at hand; risks often go unidentified, unrecognized, and unmanaged. Everything can’t be planned for, and risk management can be paralyzing and detrimental when taken to extremes; but many routinely pass by (or start) ticking time bombs without an inkling or second thought of the lurking danger.

Thoughtful and deliberate identification, consideration, assessment and understanding of undertaking risks are essential. While, checklists and controls are a necessary part of the risk management process, they also tend to provide a false sense of security and relate to specific points in time. Honest open communication within your organization about how significant risks are identified, monitored, controlled and minimized has to be made a core principal.

There is inherently less uncertainty in an organization staying close to its core competency and pushing efficiencies with as many repeatable scalable activities as possible. Management of a project by an experienced team provided with clear and unwavering vision, continuity and unimpeded momentum becomes less difficult and requires less resources. Control over a process replete with opportunities to leverage institutional knowledge and take advantage of learning curves is infinitely easier than starting from scratch (often with teams that also have little history together). The pace of transformational change today requires adaptation, but it is costly not to leverage institutional knowledge and reckless to dismiss the risk that cumulative reinvention brings with it.

Don’t negotiate with, or lie to, yourself. Significant risks can spiral out of control quickly and be devastating. No matter how well run it is, you intuitively know significant risks exist in your organization that could be managed better. The explosion of BP’s Deepwater Horizon in the Gulf of Mexico on April 20, 2010 is tragic and over time we will learn the specifics of what happened. In the mean time, let it be the catalyst for reassessing risk in your organization and planning for your successful future. Take proactive control.