[Note: To follow is an excerpt of a radio show interview conducted by Peter L. Mosca, host of Income Property Investment Talk dot com, with Randall Woodbury, CPM, 2010 IREM president, Ronald L. Goss, CPM, 2010 president elect, James A. Evans, CPM, 2010 treasurer. The trio look at the primary responsibilities of real estate managers and the impact they have on property investments, the growth of real estate management and the importance to all marketplaces across the country and the globe especially in challenging ones like today. To listen to the show archive or download an MP3, go to www.IncomePropertyInvestmentTalk.com/011310.]
Mosca: The Institute for Real Estate Management, or IREM, is the source for education, resources, information and membership for more than 18,000 individual members and 515 corporate members in over 80 U.S. chapters and 12 international chapters. IREM members manage over 1.5 trillion dollars in assets, including 8.4 million residential units, 8.4 billion net square feet of commercial space and 977 plus thousand residential units. That said, before we get into IREM and its impact on real estate, market values, property management success, and all those good things that the Institute does, let me ask each of you to peer into your crystal balls and give us an idea as to what you guys see for 2010?
Woodbury: One of the thoughts that's been on my mind is the critical need this coming year to educate and inform the financial institutions and special services that are finding troubled real estate being dumped in their laps that number one there is a need and a value proposition for professional management of that real estate. In so many cities the number of troubled properties is just merely too great to dump them off to the staff in a bank's trust department or with the servicers to expect that the same people that come around and make the annual cursory inspection to think that they're equipped to really manage and operate an apartment community or an office building or a shopping center. Those groups have been late to the game in acknowledging the problems that are facing them. I think it's a looming one and we need to let them know that there are qualified people and companies all over the nation to handle these issues or a resource for training their own staff.
Goss: Lending needs to be loosened but not to the extent it was before. Some good projects are coming due for refinancing and a lot of those are going to have a big impact on the financial picture in 2010. The recovery on apartments and some of the office buildings is slowly improving while retail is going to be hard hit in 2010. While 2010 is not going to be as bad as 2009, there are a lot of challenges we're going to have to face. To follow up on what Randy said, the key to this recovery is how we manage those troubled properties and properties in foreclosure.
Evans: I agree with both Randy and Ron. The only thing I can add is that it's really nice to see the banks having a real willingness to work with real estate property managers. They've recognized that the faster they get professional property management in place the better off they will be. Their assets will no longer depreciate, deferred maintenance etc. will be taken care of, and they're often able to turn the property much quicker afterwards. So we can help them stabilize the property, stabilize the building, stabilize the rents, which in the end will help the property move faster. If we can get credit moving faster it will definitely help all of us out. In my market we have a lot of people who want to buy buildings right now and there's no money.
Woodbury: 2009 was the year of rent relief requests. Everybody is getting a chance to ignore the terms of their lease and cut a new deal. This is kind of wearing out. Rent relief requests this coming year are going to have to be well underwritten before any type of a decision like that is made. We are seeing a little bit of a firming and strengthening of the market .
Mosca: When I introduced each one of you to today's program I mentioned the letters CPM, the Certified Property Manager designation. Who is IREM and what is a CPM?
Woodbury: Let me take little bit of a look back on where we came from. Our company dates back to 1919 when my grandfather was a family real estate business now moving from my generation, the third and now into the fourth. A significant period in our company's history of course was the Great Depression era. That was a period of struggling financial institutions and the plummeting property values and foreclosures and coincidentally a lot of the same things that we're facing today. During those years in the early thirties my grandfather became involved with a group of realtors who saw a critical need for improving the image and practice of real estate management. Those depression years were not pretty for the image of landlords and property managers. The group was driven to change that and improve that image through education and professional standards, credentials and a commitment to a strict code of professional ethics. There was a heck of a lot of real estate that needed to be revitalized. So as a result in 1933 the Institute was formed and has basically carried on for seventy-six almost seventy-seven years. It was that effort of educating and certifying professional real estate managers ever since.. There are 18,000 IREM members right now who have obtained the credentials and proven themselves.
Goss: We're a very diverse organization. The CPM, which is a Certified Property Manager, the ARM, which is the Accredited Residential Manager. We also have a firm accreditation which is called the AMO, the Accredited Management Organization, and we have one that we just began probably a couple of years ago which is ACOM which is the Accredited Commercial Manager. All of these have specific educational requirements that have to be fulfilled before this designation is received. These courses deal specifically with the fundamentals of management and how to deal with different types of properties. CPM and IREM members are recognized as experts in the real estate management business and are typically the top of their profession. More importantly, the education and the benefits and the networking with the Institute of Real Estate Management goes far beyond compensation . It has to do with more of a relying on each other for information, for regional information, for work and different things of that nature. The best fulfill the obligations of taking care of these properties and maintaining those assets to the fullest extent.
Mosca: Jim, I know a big part of being a member of IREM is the networking advantages and the ability to meet folks from all across the globe and to share and possibly create business opportunities. Do you have a story about that?
Evans: The day before I became a CPM there was a meeting and the presenter looked me square in the eye and asked, “why are you not involved in IREM?“ In professional real estate management it's not what you know it's who you know and we really put you in front of the who. Two weeks ago, for instance, two very large buildings in our market here came up for sale due to the foreclosure of the current owner. The lender was an organization out of Oregon. We've never done business with them. Quite frankly we've never even heard of them. I pick up the phone and called the contact that I have out there in Oregon. She gave me the name and number of the individual who turned out not to be the one who handled those two properties but someone in their office did. Within 15 minutes I was talking to the individual on those two buildings. Now those are calls and those are contacts that we have the inside track now on two very large properties in our market. Without my contacts through IREM I would never have been able to do that. He was telling me when I was speaking to him that I was the eighth or ninth person that tried to contact him that day and he hadn't returned anybody else's calls. I was able to get in with him and speak with him. That's happened to all of us over the years. That's the one thing that IREM does.
Goss: Let me follow up on that. Our company is a fee management company. We're not a large company but I know that we had an opportunity to do some facilities management. We had to present a proposal and we were kind of stymied as to how to do that. We put out on the IREM.org, which is our IREM Web site and IREM First, which is a part of that Web site, we put out a request for any information about facilities management. Within a 24 hour period we were inundated with so much information about facilities management that it was overwhelming.
Evans: Another point to make here is the paybacks of the credibility that comes with the credentials. I was just in Phoenix yesterday and one of our members down there whose company obtained our Accredited Management Organization designation was saying to me that they are finding, especially in appointments of receiverships and that sort of work, that they frequently aren't even competing with other firms trying to get that work. The courts and trustees see these people that have the credentials behind them and they're just giving them the contracts. So it pays in many ways.
Mosca: Any more stories?
Goss: Everyday we go on the Web site and we see questions from members that have particular problems or have opportunities in different areas of the country or internationally and ask for input. We do that on a regular basis to try to communicate one with another. I'm putting something out on as a matter of fact today on trying to find somebody to help us from a base, fundamental level to do some apartment development in our area. I expect within the period of 24 hours after putting that in that I'll have several people that will be able to assist us in that regard.
Mosca: Randy, as incoming president you must feel a little bit of pressure to keep this momentum moving forward?
Woodbury: Absolutely. So many of the basic components of what can cause the Institute to grow have come back around and are staring us in the face again today. There are opportunities in this marketplace where people need to distinguish themselves. When times are really good individuals may not feel the need to set themselves apart, to compete for things when work is coming in the door. It's easy to get by but now when we all have to get back to fundamentals and fight and scrape and compete a little harder for the work that we are getting and the work that we're trying to maintain and the clients we're trying to keep, we need to stay on the cutting edge. As an Institute we are trying to serve our core and trying to provide them the benefits that give them a return on their dues. The education that we continually offer -- we've rolled out five new publications and completed 50 Webinars this past year. They are all free for our members. So, we're working hard to keep our people in the forefront and help them be successful in their careers.
Goss: As we travel around we hear what the most appreciated benefits of IREM are and a lot of those times it's legislative. We have a very strong legislative area that we monitor all the laws that impact real estate management. As such, we lobby for or against and have calls to actions through NAR and through other vehicles working towards what we think is legislation that will benefit the real estate industry but not only the real estate industry but property management as well as those investors that have gone to invest their money in these particular assets. I find it ironic that during bad times they come to us and we manage those properties and we get those properties in a position where they're more beneficial and then all of a sudden a lot of these owners come back to us and say, “well I think we can handle them now so we'll take them back over.” That's part of what the fee management business is and that's what we do. We're good at turning properties around.
Mosca: What is happening in your markets?
Evans: There's no doubt that the road to recovery has started. In the suburbs of Detroit it's going to be a slow one. If we continue to do things the way we've been doing them, you know companies have reinvented themselves and go back to the way we did business 10 to 15 years ago and realize that the days of being able to put up a shingle and run your company any way you want to are over. You need to really go back to basics go back to fundamentals and run your businesses and properties the way that they were being run 10 years or so ago. We led the country into the recession. With the 'Big 3' having the problems that they've had it has really affected us probably more so than a lot of others. Most of the banks that we know of have stopped lending in the state. They're trying to figure out exactly what we're going to do. The state is in chaos from a legislative level but we're a resilient state. We've been through this before. The auto industry has been through this before. I'm from a community that in the mid 70's had 85,000 auto related jobs and we're down to about 8,500 now. So, we've been through it before. We know how to tighten up the belt and suspenders a little better and we're going to get through this just fine. It's the Midwest mentality and we're going to get through it. It's not going to be as big an issue for us as people think.
Woodbury: I'm in Salt Lake City and we have our issues out here. Our unemployment is about half of what the national average is. We think it's bad but it's still pretty good comparatively, and our real estate markets although we are suffering problems it isn't to the extent that so many of these more depressed markets are. I look at jobs in real estate management and I feel like there's more of a musical chairs going on than there is an actual loss of real estate management jobs. Clearly, if you're a property manager working for a company the owner you're working for loses the property to the lender you might lose that job but the management of that real estate has to go on and be carried on somewhere. That kind of goes back to what I very first started talking about whether there's lenders or services or something the function is still there it's what's seeking out the new opportunities to where you can pick that management up again. One other thing I might say that's so different about this ride than say the RTC days was that when financial institutions got a problem property they knew what it was, where it was, and they could go deal with it. One of the real complications has been the Wall Street effect - the fact that institutions know they have troubled properties, but they may have X percent of series A of traunch B, it's so sliced and diced it's really delayed the process of somebody actually putting their hands around the physical asset and saying we've got to deal with this.
Goss: My market is Little Rock, Arkansas. Typically, as a rule, no matter what the economic situation we're a couple years behind everybody else so we've not suffered as much as a lot of places have. Our unemployment typically runs 3.5 to 4 percent but we're up at 7 right now. We are seeing a slight increase in residential home sales, and our occupancy in apartments is probably down to the mid 80's to low 90's and typically that's because of the incentives that are going on for the first time buyers of residential single-family dwellings. We still realize that in order to be able to make a recovery that professional management does matter and we have to make sure that our properties are maintained in such a fashion that as we slowly come back from this problem that we are in a position in the properties that we manage are in a position to be there when people start coming back. We're increasing our efforts in our marketing and we're increasing our efforts, we've not reached the point yet that we do giveaways like they did back in the 80's like microwaves and televisions and all that but we're giving free rent for our retail tenants as well as new prospects in our apartments as well.
Mosca: What is your golden nugget?
Evans: Good management matters. Rely on good, solid property and asset management companies to help you through some of the dark days that we've had and unfortunately we're going to have in the next few months or even years. We're here to help you and we're here to help our membership. We can help solve some of the problems that maybe some other organizations can't.
Goss:Under the circumstances that we're in right now in the economy and the troubled assets that we're facing and we're going to be facing probably for the next year or two years that I can truthfully say that amateur hour is over. It's time for professionals to jump in and save these assets and bring these assets back to their value. Part of the recovery is going to depend on how these assets are managed and how we go forward with that.
Woodbury: Good professional management translates directly into value and that professionally managed properties improve the quality of life for the people that live, work and shop in them. This is real estate management's time. As property managers, we never have been and probably never will be the flashy side of the real estate industry. We're always just in the background working hard, but we are the steady part of the real estate industry and our work doesn't go away.