Cushman & Wakefield, Marcus & Millichap Quietly Cut Jobs Last Year As Business Slowed

/ .whereAndWhen

Two of the nation's largest brokerage firms saved millions of dollars by quietly laying off workers at the end of last year.

Cushman & Wakefield and Marcus & Millichap reported headcount reductions in their fourth-quarter earnings reports. However, details regarding the number of layoffs and which departments were most impacted were scant.

Cushman & Wakefield cut $24.4M in operating and administrative expenses in Q4 primarily through lowered employment costs. The firm also reported an increase of $800K in restructuring changes, which was linked to severance payouts.

Marcus & Millichap's workforce shrunk by 5% last year, with the majority of turnover concentrated among employees who had been with the firm for one to three years, CEO Hessam Nadji said during the firm's earnings call.

In December, the company tightened expenses by reducing headcount, Nadji said, though he stopped short of sharing how many employees were laid off.

The reduction at Marcus & Millichap was relegated to corporate staff, Vice President of Public Relations Gina Relva told Bisnow. She said that despite economic headwinds prompting some layoffs, the company has also hired new agents and loan originators.

"Marcus & Millichap remain focused on strategically managing controllable expenses while continuing to provide best-of-class services on behalf of our clients and sales professionals," Relva said in an email.

Cushman & Wakefield did not respond to Bisnow's request for comment.

A growing number of large brokerage firms have implemented cost-cutting measures following a steep decline in transactions and capital market activity in the latter half of 2022.

JLL reported spending $9.3M in severance costs in Q3 before laying off an unspecified number of workers in November. CBRE also confirmed plans to reduce expenses by $300M through staff reductions.

Those staff reductions are "largely done," a CBRE spokesperson told Bisnow Thursday following the firm's Q4 earnings call.

 

Read: eXp World Holdings Reports Q4 and Full-Year 2022 Results

 

Source: Cushman & Wakefield, Marcus & Millichap Quietly Cut Jobs Last Year As Business Slowed

https://www.creconsult.net/market-trends/cushman-wakefield-marcus-millichap-quietly-cut-jobs-last-year-as-business-slowed/

Reversing Pandemic Trend, Apartment Sizes Shrink As Developers Try To Boost Yield

/ .whereAndWhen

Rising interest rates and the proliferation of build-to-rent contributed to a decrease in the average size of U.S. apartment units in 2022 as developers chased yield after two years of pandemic-driven upticks.

“Cost" to develop has played more of a factor in the decrease than market location,” Yardi," I Matrix Senior Analyst and Manager of Business Intelligence Doug Ressler told Bisnow.

The average size of new apartments started in the United States last year came in at 887 SF, a 30 SF year-over-year decrease, according to RentCafé calculations, based on Yardi Matrix data.

It’s tIt'sirst decrease since the pandemic spurred the development of slightly larger units aimed at people working from home. But now, developers are figuring out how to build remote workspaces while keeping overall floor plans small, motivated by the need to outsmart a high interest-rate environment.

“Small"r apartment units can largely be attributed to changing floor plans and unit mixes,” Ress" er said. “These" two factors and minimalist living explain the decrease in apartment size across markets and cost trends.”

Coun"intuitively, work-from-home office space can shrink or at least not increase a unit'sunit'sll size, especially when it is built instead of more oversized bedrooms or storage plans. Access to green space or nearby amenities can also mean tenants don't need large units.

“Two-b"droom units have decreased from about 40%-plus of the total share of teams to 30% of total units,” Ress" er said. “The i"production of the single-family build-to-rent product, which accommodates larger families and three or more bedrooms configurations, may influence this trend.”

Butthehe decreases in unit size aren’t intake across the board, with some surprising changes coming in the countrcountry'sst-cost markets like New York City and San Francisco, where unit sizes crept up.

Apartments in Manhattan, for example, grew 19 SF, or 3% compared with a decade earlier, despite the borougborough'sation for minuscule domiciles. In San Francisco, the average unit size grew 52 SF, or 7%, from 2013, according to RentCafé, and in Los Angeles, renters had an average of 45 feet more space.

Still, the U.S. average is down as developers up the proportion of studios and one-bedroom apartments they develop. Indeed, 57% of the apartment units set last year were studios or one-bedrooms, RentCafé reports. In 2013, studios and one-bedroom units represented 50% of multifamily units.

“There" is a trend for smaller units as developers try to squeeze out more yield in the same amount of space given the current challenges with interest rates and hard-cost pricing,” NRPgroupup Vice President of Development Jason Mochizuki said.

“Oourou" projects, so far, we haven'haven'tdoing that yet. Still, as this year progresses and pro formas continue to get tighter, I can see some developers increasingly shrinking unit sizes,” Moch" Mizuki said.

In early February, NRP Group broke ground on South Tryon, a market-rate community in Charlotte, North Carolina, bringing 310 units, including a mix of one-, two- and three-bedroom apartments, with den floor plans available in one-bedroom units to accommodate post-pandemic work-from-home.

PTM Partners Managing Partner Michael Tillman said his company has been building units that are “more "efficiently sized” sinc" its inception, typically averaging 5% to 10% smaller than comparable developments. PTM is active in Florida and the mid-Atlantic.

“Our p"primary motivation for smaller unit sizes is to create a Class-A building that that's-accessible to a larger percentage of residents within a 1-mile radius of the property,” Till,"  said. “But w" also realized that the next generation of renters was spending more time in the common areas and utilizing those amenities. Thus we typically provide amenity spaces that are significantly larger in size and variety.”

Unit size shrank during a record year for the construction of new apartments.

Given the sharp rise in the cost of debt and continued higher costs of construction and labor, Tillman said one possible way to reduce costs is to reduce unit sizes. Still, not all markets are the same, and smaller unit sizes may not be commercially acceptable in specific needs where land is more readily available. Also, he noted that merely shrinking unit sizes doesn'doesn'tatically mean cost savings.

“You n" ed to consider unit layouts, appliance sizing, storage, and lighting,” Till,"  said. “For e"ample, a smaller unit may reduce the ability to have walk-in closets or larger furniture pieces, so built-ins and millwork might be necessary. Smaller units to reduce costs may not be the best solution.”

Some"developers say they aren'taren'ting their unit size yet, but acknowledge that market realities increasingly require more attention to design and construction details rather than geography.

“What ha"en'haven'tapartments shrunk in size, either during Covid or continuing to the present,” Dive"sified Properties Managing Partner Nicholas Minoia said. “As mattered of fact, the outer ring markets we serve are still seeing demand for somewhat larger units that include either a den or — minimally — a work-from-home area for employees working a hybrid schedule.”

Acti"e in most property types, Diversified ProperProperties'family development focuses on metro New York City, including outer ring communities and dense urban cores. Minoia acknowledges that supply chain delays persist and development costs are high.

“Still" we also recognize the need to balance these construction and financial realities with the space needs of renters in our markets,” Mino,"  said. “Looking"g ahead, developers will need to be even more hands-on in understanding the specific demands of the renters in their respective markets.”

 

 

Source: Reversing Pandemic Trend, Apartment Sizes Shrink As Developers Try To Boost Yield

https://www.creconsult.net/market-trends/reversing-pandemic-trend-apartment-sizes-shrink-as-developers-try-to-boost-yield/

Should I Sell or Should I Hold? When is the best time for asset repositioning?

When it comes to selling their investment properties, clients typically ask me,’ Why should I sell?’ Great question. Why should you sell? The obvious answer is that you purchased the investment property as an investment, and it may not be doing as well as other investment opportunities, and after a while, you don’t realize the appreciation and thus maximization of profit from the property until you sell and acquire another investment property. So the question is really, ‘When should I sell? Clients really lose the perspective of the driving reason why they invested in an investment property in the first place. An investment property is just that; an investment. Treated as such, every investment must have a horizon and an exit strategy. If a property was purchased as an investment, then it makes full sense to profit as much as possible from the investment.

The real estate market, like any other market, will go through peaks and valleys. Trying to predict the exact moment of peak or the exact moment the market reaches the bottom is practically impossible. The real estate cycle has four phases; recovery, expansion, hyper supply, and recession. The complete real estate market cycle seems to have an average duration of about 18 years as there is good historical data to support that. So, where are we in that cycle now? How much more upside will we see before we reach the peak? The question really is, ‘What is your appetite for risk?’

Below is a chart of the real estate cycles dating back from the 1800s. The last real estate market crash started at 2006. We are almost 16 years into that cycle. Interest rates are still at all-time lows. Money is cheap, and the threat of inflation is very high. How long can government print money without paying the price down the road? How much road do we have left?

So when is a good time to exit an investment property? As with everything else, real estate is cyclical. Those of us that have been around for some time have witnessed several cycles in the real estate market. Since it is practically impossible to predict the peak of cycles, what strategy should you then use to maximize your investments? Keeping it simple, when evaluating if you should consider selling an investment property, it doesn’t really matter what the current real estate market is like. If you are looking to replace the investment property with another investment property, the ultimate decision to sell should also be based upon if you can increase your returns with the new replacement property, not what state the current market is in now.

There are a number of factors that can impact real estate prices; availability, investment potential, and interest rates, to name a few. Interest rates impact the price and demand of real estate—lower rates bring in more buyers due to the lower cost of money but also expand the demand for real estate, which can then drive up prices. As interests rate starts to inch up, the cost of money increases, and thus the appetite for real estate investments declines.

However, there are many ways that one can still protect their investments. 1031 Exchanges give investors a vehicle to reposition assets and mitigate risk. There are certain asset classes that inherently hold less risk and still perform as an investment vehicle. The questions really come down to; ‘How long do I hold on during this cycle? Do I have the time horizon to outlast another cycle? Is it time to reposition and take advantage of 1031?

As part of the team for our client’s investments, we specialize in building solutions around our client’s needs. We analyze the requirements, crunch the data, and present assets entirely based on their circumstances and the goals they are trying to achieve with their investment.

Have you thought of selling your property and would like to know what it’s worth? Request a valuation for your property below:

Request Valuation

 

Source: Should I Sell or Should I Hold? When is the best time for asset repositioning?

https://www.creconsult.net/market-trends/should-i-sell-or-should-i-hold-when-is-the-best-time-for-asset-repositioning/

Sam “Simcha” Applegrad Pays $31M for Schaumburg Apartments

Applegrad pays $31M for Schaumburg apartments

Seller paid $47M for a 396-unit property in 2014.

Sam “Simcha” Applegrad picked up an apartment complex in the northwest Chicago suburbs for $31 million, adding to the streak of multifamily trades in the area as deal volume for other commercial real estate assets dives while rising interest rates wedge pricing gaps between buyers and sellers.

While the deal's price was about $16 million less than what the San Francisco Bay Area-based seller, Friedkin Property Group, paid for the property nearly a decade ago, it looks to have taken slightly more cash than out from a loan during its ownership.

Several LLCs affiliated with Applegrad’s New York-based firm YMY Acquisitions are listed as the buyer of the 396-unit, three-story Fieldpointe of Schaumburg apartments at 1708 Arbor Square in a deal executed Dec. 16 and documented late last month in Cook County records.

Friedkin, which Morton Friedkin helms, paid $47M for the apartments in 2014, part of the firm’s Chicago-area shopping spree underway. ADVERTISEMENT It’s unclear whether the lower sale price indicates the property sold at a loss or whether the deal included a creative financing arrangement. Friedkin took out a $49 million mortgage on the property in 2020, and it’s possible the deal involved the buyer taking over the loan for the remaining balance. YMY declined to comment on the sale. Friedkin did not respond to requests for comment.

However, losses on apartment play in the Chicago area have been rare in the last several years, even as occupancy at suburban multifamily properties dipped a bit in the past year. They were still nearly fully leased, though, at 97.5 percent occupied in the third quarter last year, down from a rate of 98 percent and higher in the past year, according to the most recent data from Integra Realty Resources.

Integra said the average suburban net effective rent was steady throughout last year, ending the third quarter at $1.92 per square foot. The complex includes studio, one-bedroom, and two-bedroom apartments. One-bedroom apartments lease start at $1,557 a month, with the price going up to $1,910 monthly for a two-bedroom unit.

The property was built in the 1970s and renovated in 2008. According to the firm's website, Friedkin still owns several Chicago-area residential and mixed-use properties in the city and the suburbs of Naperville, Elk Grove Village, Aurora, and Evanston.

Other significant multifamily assets that have traded hands in the Chicago suburbs in recent months are the 586-unit Stonebridge Village Apartments in Arlington Heights for a price of about $224,000 per unit in January and a 236-unit complex in Buffalo Grove that DRA Advisors bought for $53 million in December.

Source: Sam “Simcha” Applegrad Pays $31M for Schaumburg Apartments

https://www.creconsult.net/market-trends/sam-simcha-applegrad-pays-31m-for-schaumburg-apartments/

2023 eXp Commercial Commercial Real Estate Symposium

REGISTER TODAY

The Commercial Real Estate Symposium will provide junior and senior agents and brokers with valuable insights on topics, including: international opportunities, capital and funding for small businesses in today’s market, how to attract investors, and much more.

Dates: April 25-26, 2023
Start Time: 9 a.m. - 4 p.m. CST
Location: eXp Commercial Campus

We look forward to seeing you in the metaverse!

Important: Please download the virtual eXp Commercial Campus prior to the event, and follow the instructions to login and create your avatar. Feel free to explore the campus before the event begins.

 

+ Add to Google Calendar   + Add to iCalendar

 

Interested in Joining eXp Commercial as a Commercial Real Estate Agent?

Further Info

https://www.creconsult.net/market-trends/2023-exp-commercial-commercial-real-estate-symposium/

eXp World Holdings Reports Q4 and Full-Year 2022 Results

2022 Revenue of $4.6 Billion, up 22% Year Over Year

Segment Reporting Introduced Highlighting Profitable Q4 in North American Realty

Company Declares Cash Dividend for Q1 2023 of $0.045 per Share of Common Stock

Glenn Sanford Returns as CEO of eXp Realty to Drive Next Phase of Agent-Centric Growth

BELLINGHAM, Wash. — Feb. 28, 2023 — eXp World Holdings, Inc. (Nasdaq: EXPI), (or the “Company”), the holding company for eXp Realty®, eXp Commercial, Virbela, and SUCCESS® Enterprises, today announced financial results for the fourth quarter and fiscal year ended Dec. 31, 2022. Beginning in the fourth quarter, the Company has revised its operating segments providing greater transparency into the drivers of its financial performance.

Fourth Quarter and Full-Year 2022 Consolidated Financial Highlights as Compared to the Same Year-Ago Period:

• Revenue increased 22% to $4.6 billion in 2022 with revenue of $933 million in the fourth quarter of 2022.


• Gross profit increased 24% to $366.9 million in 2022 with gross profit of $83.1 million in the fourth quarter of 2022.


• Net income of $15.4 million in 2022 with net loss of $(7.2) million in the fourth quarter of 2022.


• Earnings per diluted share of $0.10 in 2022 with a loss per diluted share of $(0.05) in the fourth quarter of 2022.


• Adjusted EBITDA (a non-GAAP financial measure) of $60.5 million in 2022. Adjusted EBITDA was $3.6 million in the fourth quarter of 2022 compared to $13.1 million in the fourth quarter of 2021.


• As of Dec. 31, 2022, cash and cash equivalents totaled $121.6 million, compared to $108.2 million as of Dec. 31, 2021.


• Distributed $204.7 million to shareholders in fiscal 2022, including approximately $179.5 million of common stock repurchases and $25.2 million of cash dividends.


• The Company paid a cash dividend for the fourth quarter of 2022 of $0.045 per share of common stock on Nov. 14, 2022. On Feb. 9, 2023, the Company’s Board of Directors declared a cash dividend of $0.045 per share of common stock for the first quarter of 2023, expected to be paid on March 31, 2023 to stockholders of record on March 13, 2023.

Management Commentary

“I am excited to return as CEO of eXp Realty to drive our next phase of growth by doubling down on agent-centric innovation,” said Glenn Sanford, Founder, Chairman and CEO of eXp World Holdings. “Our model was designed to withstand varying market conditions, which uniquely positions us to continue investing in the agent experience in a down market. In turn, we maximize long-term growth and profitability.”

“Thanks to the hard work of our agents and our industry-leading operating efficiency, our core eXp Realty North American business remained solidly profitable in the fourth quarter despite the market downturn. In line with how we manage our business, we are now reporting segment-level financial information, which also provides transparency into the financial performance of our core business and the investments we are making to reinforce and extend our position as the most agent-centric brokerage on the planet.”

“We believe Net Promoter Score (NPS) is the best way to measure our success, and we were thrilled to end the year with a global agent NPS score of 73, a level which rivals the most loved consumer brands in the world. As market conditions improve, we expect our unrelenting focus on agent success to deliver lasting growth and the potential for significant wealth creation for our brokers, agents and shareholders in the years ahead,” concluded Sanford.

“In 2022, we generated $4.6 billion in revenue and over $242 million in Operating Cash Flow⁽¹⁾ while maintaining a strong balance sheet with $122 million of cash and no debt,” said Jeff Whiteside, CFO and Chief Collaboration Officer of eXp World Holdings. “Moving forward, eXp’s profitable North American Realty segment will enable us to continue investing in the eXp platform to accelerate agent success and drive long-term, profitable growth.”

Fourth Quarter and Full-Year 2022 Operational Highlights as Compared to the Same Year-Ago Period:

• Agents and brokers on the eXp Realty platform increased 21% to 86,203 as of Dec. 31, 2022.


• Real estate transactions closed increased 15% to 511,859 in 2022 and decreased 13% year over year to 109,168 in the fourth quarter of 2022.


• Real estate transaction volume increased 20% to $187.3 billion in 2022 and decreased 16% year over year to $37.6 billion in the fourth quarter of 2022.


• eXp Realty expanded into six new international locations in 2022, including the Dominican Republic, Greece, New Zealand, Chile and Poland. In late 2022, eXp Realty announced operations in Dubai, which is expected to be fully operational in 2023.


• eXp Realty ended 2022 with a global Net Promoter Score of 73, a measure of agent satisfaction, as part of the Company’s intense focus on improving the agent experience.

^{(1) Operating Cash Flow presented is net cash provided by operating activities excluding change in customer deposits.}

Fourth Quarter and Full-Year 2022 Results – Virtual Fireside Chat

The Company will hold a virtual fireside chat and investor Q&A with eXp World Holdings Founder and CEO Glenn Sanford and CFO Jeff Whiteside on Tuesday, Feb. 28, 2023 at 2 p.m. PT / 5 p.m. ET.

The investor Q&A is open to investors, current shareholders and anyone interested in learning more about eXp World Holdings and its companies. Submit questions in advance for inclusion to [email protected].

Date: Tuesday, Feb. 28, 2023

Time: 2 p.m. PT / 5 p.m. ET

Location: EXPI Campus. Join at https://expworldholdings.com/contact/download/

Livestream: expworldholdings.com/events

About eXp World Holdings, Inc.

eXp World Holdings, Inc. (Nasdaq: EXPI) is the holding company for eXp Realty®, Virbela and SUCCESS® Enterprises. eXp Realty is the fastest-growing real estate company in the world with more than 86,000 agents in the United States, Canada, the United Kingdom, Australia, South Africa, India, Mexico, Portugal, France, Puerto Rico, Brazil, Italy, Hong Kong, Colombia, Spain, Israel, Panama, Germany, Dominican Republic, Greece, New Zealand, Chile, Poland and Dubai and continues to scale internationally. As a publicly traded company, eXp World Holdings provides real estate professionals the unique opportunity to earn equity awards for production goals and contributions to overall company growth. eXp World Holdings and its businesses offer a full suite of brokerage and real estate tech solutions, including its innovative residential and commercial brokerage model, professional services, collaborative tools and personal development. The cloud-based brokerage is powered by Virbela, an immersive 3D platform that is deeply social and collaborative, enabling agents to be more connected and productive. SUCCESS® Enterprises, anchored by SUCCESS® magazine and its related media properties, was established in 1897 and is a leading personal and professional development brand and publication.

For more information, visit https://expworldholdings.com.

Use of Non-GAAP Financial Measures

To provide investors with additional information regarding our financial results, this press release includes references to Adjusted EBITDA, which is a non-U.S. GAAP financial measure and may be different than similarly titled measures used by other companies. It is presented to enhance investors’ overall understanding of the company’s financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP.

The company’s Adjusted EBITDA provides useful information about financial performance, enhances the overall understanding of past performance and future prospects, and allows for greater transparency with respect to a key metric used by management for financial and operational decision-making. Adjusted EBITDA helps identify underlying trends in the business that otherwise could be masked by the effect of the expenses that are excluded in Adjusted EBITDA. In particular, the company believes the exclusion of stock and stock option expenses provides a useful supplemental measure in evaluating the performance of operations and provides better transparency into results of operations.

The company defines the non-U.S. GAAP financial measure of Adjusted EBITDA to mean net income (loss), excluding other income (expense), income tax benefit (expense), depreciation,  amortization, impairment charges, stock-based compensation expense, and stock option expense. Adjusted EBITDA may assist investors in seeing financial performance through the eyes of management, and may provide an additional tool for investors to use in comparing core financial performance over multiple periods with other companies in the industry.

Adjusted EBITDA should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with U.S. GAAP. There are a number of limitations related to the use of Adjusted EBITDA compared to Net Income (Loss), the closest comparable U.S. GAAP measure. Some of these limitations are that:

• Adjusted EBITDA excludes stock-based compensation expense and stock option expense, which have been, and will continue to be for the foreseeable future, significant recurring expenses in the business and an important part of the compensation strategy; and


• Adjusted EBITDA excludes certain recurring, non-cash charges such as depreciation of fixed assets, amortization of acquired intangible assets, and impairment charges related to these long-lived assets, and, although these are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future.

Safe Harbor Statement

The statements contained herein may include statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. These statements include, but are not limited to, statements about the continued growth of our agent and broker base; expansion of our residential real estate brokerage business into foreign markets; and revenue growth and financial performance. Such forward-looking statements speak only as of the date hereof, and the company undertakes no obligation to revise or update them. Such statements are not guarantees of future performance. Important factors that may cause actual results to differ materially and adversely from those expressed in forward-looking statements include changes in business or other market conditions; the difficulty of keeping expense growth at modest levels while increasing revenues; and other risks detailed from time to time in the company’s Securities and Exchange Commission filings, including but not limited to the most recently filed Quarterly Report on Form 10-Q and Annual Report on Form 10-K.

Media Relations Contact:

eXp World Holdings, Inc.

[email protected]

Investor Relations Contact:

Denise Garcia

[email protected]

The following tables reflects Revenues and Adjusted Segment EBITDA by reportable segments:

Source: eXp World Holdings Reports Q4 and Full-Year 2022 Results

https://www.creconsult.net/market-trends/exp-world-holdings-reports-q4-and-full-year-2022-results/

Lending Guru Charles Rho Gives Advice on How to Prepare During a Down Market

After 17 years with General Electric Capital, closing on more than $11 billion in transactions, Charles Rho was recruited by CBRE in 2014 to launch a new division for commercial business lending.

Big stuff, but the right man for the job.

Since then, Rho started his own lending firm, VelocitySBA, which has risen to the Top 50 out of 1,600 small business lenders in the United States. His next goal is to put VelocitySBA in the Top 5 nationwide of all small business lenders.

In a recent conversation with Jim Huang, President of eXp Commercial, Rho laid out advice about how any market – even a recession – can be navigated successfully, as long as you are prepared.

Here are the key points Charles Rho made about handling the coming market shift during his talk with Jim Huang:

We Are Entering a Recessionary Period Right Now

“If you look at all the indicators right now with the interest rate movement, inflation, GDP, you will see a general consensus that we are headed for a downturn. Top leaders in banking and other industries acknowledge this is happening. They’re tightening their expenses, starting to lay off employees as well. We've had a number of national banks lay off quite a few workers and really start to get ready for the recession. That's forthcoming,’’ he said.

“My view is that we will probably get into a recessionary period starting (in January 2023) through March. And I believe that the recession will last at a minimum probably 12 to 16 months. So for the next two years, I think we are headed for some tough times,’’ he said.

“That’s why being out in front of your customers, being out in front of your people and directing the organization by making sure you have controls in place will be absolutely critical.”

Understand Your Numbers, Have Control of Expenses and Cash Reserves

“As small business owners, whether you're brokers or you're representing a small business owner who's looking to purchase another small business or looking to purchase real estate, we all need to prepare just as the larger institutions are preparing.

“I'm not advocating that we go out and lay off a bunch of folks, but we do need to understand our numbers. We need to have good control of our expenses, good control of our cash reserves to make sure that we are prepared for the next 12, 18 and 24 months. That may be a bit of a challenging time for all of us.”

GE Capital Taught Rho How To Be Nimble

“While GE is a huge conglomerate, the reason GE was very successful, including GE Capital Businesses, was that each business unit was its own balance sheet. Each business was able to operate like a small business. We were able to react quickly. We were able to pivot in the market based on market conditions. We were able to quickly launch products, and that entrepreneurial spirit was able to propel GE Capital's Businesses to become very specialized and to become No. 1 or No. 2 in their specialty finance area.”

Identify Your Strategic Advantage

Everyone needs a sound business plan when they launch, but Rho said that’s not enough.

“A business plan should be an ongoing process, updated on an annual basis so that you're always projecting out 3-to-5 years. This helps you to align your focus where you know and direct the business to where you need to go. This is what I do on an annual basis. Sometimes we update the business plan once or twice a year if we need to pivot because of a changing environment,’’ he said.

Identifying your strategic advantage is the key to developing your business plan.

“We all have competitors. And we all have to understand who our audience is. What is it that you're selling? And based on that, what is my strategic advantage? That is a key component that I sometimes see is missing from business owners. They don’t understand what their key advantage is and they don't understand who their competition is. That’s how to take a business to the next level. What is my strategic advantage?”

Review Everyone in Your Organization

Rho said ranking every employee based on their experience and skill set is a key part of creating a 3-to-5-year business plan. You have to know what their capacities are, what their potential is. These are the people upon whom your business plan rests. This is your team.

Always Consider Your Economic Climate

Given the projected downturn, Rho said it is critical to understand your profit and loss statement, and to have your cash-flow projections. Rho said he did that for his business, with scenarios that kept revenue “normal” to a worst-case scenario projecting a 50% downturn in revenue.

“You need to go through some case scenarios or assumptions. If there’s a downturn and my revenue falls off by 30%, what does that do to my cash? What if the revenue falls by 50%, how does that impact my cash flow, my income statement?”

Key Factors To Survive a Recession

Be liquid. Preserve cash. Understand your P&L and how your revenues may be impacted. You need to then understand how much cash and liquidity is needed to survive through a recession.

Expense control. If your revenues fall by 30%, are you able to maintain your expenses as it lies today or do you need to trim expenses?

Secure a line of credit. If you own real estate, if you own a business, Rho said you should “immediately secure a line of credit before the real estate devalues further.” Acting swiftly means you can secure credit against today’s values before your business potentially suffers a revenue decline.

Watch out for government stimulus: Depending on how deep the recession may get, the government could mirror its use of the SBA program during the Covid pandemic, when they introduced the CARES Act (Coronavirus Aid, Relief, and Economic Security Act) and PPP loans (Paycheck Protection Program).

Be opportunistic. If you expense control and secure credit, you will be able to be opportunistic and be able to transact on deals that may exist in the market, or create deals in the market.

When Banks See Distressed Portfolios, Tap Into SBA Lenders for Better Terms

Rho said commercial real estate agents should make sure their borrowers or buyers are prepared and ready to go.

“It happens in every recession. Bank lenders pull back from lending because they're concerned about their portfolio. They go into portfolio management mode, making sure their portfolio of loans stay healthy and that loans don't go delinquent,’’ he said.

Look for lenders who will continue to provide SBA financing during the downturn. These tend to be lenders willing to work within the community for more favorable terms.

“If you're financing the acquisition of a business, or you're looking for working capital equipment loans, those are going to be typically done on a 10-year term. Real estate is going to be a 25-year maximum term. What you'll notice if you're used to working with banks, bank loans have a much shorter term,’’ Rho said.

“The advantage of SBA loan is that you have a longer term and that allows the small business owner or the borrower to really reduce the monthly payment so that you can focus more cash flow into the business rather than into the debt payment.’’

Tips For Helping People Secure Loans From SBA Lenders

• 
  
  
  
  • Look for loans with no balloon, no need for refinancing and no prepayment penalty.
  
  
  
  

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  • SBA lenders look at the strength or weakness of the business owner and their ability to repay the loan. That includes the ability to service the debt and a credit score of 680 or above.
  
  
  
  

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  • Lenders examine a small business owner’s experience and want to see no criminal background, no bankruptcies.
  
  
  
  

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  • A detailed business plan is very important.
  
  
  
  

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  • Post-closing liquidity is necessary to ensure working capital for at least six to 12 months.
  
  
  
  

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  • Commercial real estate agents can direct customers seeking to start new or expand business to a Certified Public Accountant. Demonstrating a financial history via tax returns, personal financial statement, and there's an SBA application form 1919.
  
  
  
  

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  • Contact a volunteer at Score, a service of the U.S. Small Business Administration to help draw up a business plan.
  
  
  
  

“There are individuals at this Score program that mentor, that help write business plans and help secure financing based on the needs of the small business owners. So take a look at these resources. These are available for anyone who are interested in finding out about what all the resources are available through the federal agencies,’’ Rho said.

“There are also state agencies, like Calcap in California, or the Texas Economic Development office. There are resources,’’ Rho said.

Opportunities Exist for Businesses Positioned and Prepared to Play Offense

When real estate agents or business owners realize the market is shifting, Rho said there are plenty of ways to be prepared, like having a strategic plan and knowing what resources are out there.

“I think what's critically important is to really understand where your business is, where your operation resides today and where it needs to go in the next 12, 24 months, and 36 months. Take a look at what the potential downside and the upside can be during a recession. And I will tell all of you guys right now I am expecting a recession,’’ Rho said.

“But there are two ways you can play this, at least as a lending company: Hunker down and play defense, or try to play offense and look for opportunity. That means understanding what your strategy is and what’s your competition.Those who can control their expenses will survive through a recession. And not only will they survive, they will come out stronger and essentially your field of competitors will shrink in a recession.’’

Source: Lending Guru Charles Rho Gives Advice on How to Prepare During a Down Market

https://www.creconsult.net/market-trends/lending-guru-charles-rho-gives-advice-on-how-to-prepare-during-a-down-market/