REmatrix Interview with
Forbes J. Rutherford, President of
Rutherford International Executive Search
Group Inc.
June 5, 2007
– Toronto, Canada
Topic:
Globalization – An Overview of Real Estate
Markets & Career Opportunities
Forbes
Rutherford has provided specialized HR
consulting and Executive Search services to
both national and international property and
investment firms for the past twenty-one
years. Having dealt with a broad cross
section of the industry’s senior executives
and rising stars, Mr. Rutherford is in a
unique position to observe the changing
macro trends and oncoming challenges facing
the Canadian and International real estate
community. Additional information on Mr.
Rutherford’s background may be viewed at the
following web links:
www.rutherfordinternational.com or
http://www.linkedin.com/in/rutherfordintl
REmatrix.com
www.rematrix.com
What would you consider a fundamental
consideration for choosing a career in
commercial real estate?
Forbes
Rutherford
I’ve been involved in real estate executive
search since 1986 and prior to this
profession, I worked in real estate
development in Canada and property
investment overseas. I’ve experienced all
the market cycles and am intimately aware of
the economic machinations associated with
oil price shocks, double digit interest
rates, “loan to own” commercial lending, tax
driven squeezing and pumping of industry
sectors, economic recessions and industry
specific depressions. Real estate is the
first industry sector to be cooled by a
country’s monetary policy; and the last to
be warmed up by it.
A
fundamental consideration for choosing a
career in real estate is to understand its
structure and economic role in our lives. In
business theoretical terms, commercial real
estate is a “complex adaptive system;”
meaning it can move to the brink of chaos
before new patterns emerge and new forms of
organizations take place.
Stay
current, plan for rainy days and be as
adaptive as the system you’re entering. Real
estate is cyclical and dynamic; and one
should be comfortable with the concept of
living with uncertainty. A large percentage
of our real estate professionals haven’t
experienced a full market cycle – but in
time they will, as financial gravity does exist.
It's part of the natural order of a market economy.
The framework for doing business today may
not exist tomorrow. To understand this
assertion, one only needs to review business
history and list the iconic names that no
longer exist but for a shell company on a
receiver’s shelf.
REmatrix.com
www.rematrix.com
What trends have you observed in the
globalization of real estate and what will
the impact of globalization have on careers?
Forbes
Rutherford
It’s not globalization of real estate per
se, as all real estate is local; it’s really
the globalization of real estate investment,
portfolio management, infrastructure
investment in emerging markets and the rapid
consolidation of global service companies to
support these transnational property owners.
It’s not a
comprehensive list of observed trends, but
some that come to mind are:
-
Consolidation of Service
Providers:
Markets in major industrialized nations
are by and large “Established Markets.”
They cycle through four primary phases
over time – stabilization – improvement
– positive position and trading. The
majority of institutional capital pools
typically buy at or just prior to the
fourth phase and then have a policy of
“holding.” They don’t trade as often, so
“deal flow” of institutional grade real
estate is constrained. The only
motivation to kick it out of the
“portfolio nest” is a reallocation of
portfolio risk; or the asset has reached
life cycle obsolescence and is in need
of revaluation and transformation.
Without “deal flow” of A, B, and C Class
institutional grade investments, you
will note that service providers
associated with facilitating these
transactions are broadening their
service scope through international
merger and acquisition. They need to
find other ways to make money, and
clients are demanding “one stop”
shopping. CB Richard Ellis acquiring
Trammel Crow; or Europe’s DTZ expansion
into North America are prime examples of
international property service companies
consolidating to meet the service needs
of global corporations and transnational
property owners.
-
Growth of non-traditional
owners
such as private equity opportunity funds
that are often a combination of high net
worth sophisticated investors and
institutional capital that have a higher
level of managed risk associated with
it. I refer to it as institutional “mad
money” if you pardon the expression,
that’s looking for a little more “juice”
and is prepared to back stop
entrepreneurial fund management
expertise.
-
Growing interest in
emerging markets
by more nimble and private capital. The
institutions have been front and center
for quite some time in foreign markets
using foreign intermediaries; private
equity is just beginning to flow into
emerging markets but not at any
significant rate relative to what we see
coming into the Continental USA and
Canada. The aggregation of our
respective immigrant communities that
hail from “emerging industrial nations”
into private equity pools for off-shore
investing strikes me as an opportunity
at the local entrepreneurial level that
we’re missing. There is an immense
opportunity for “revaluation and
transformation” of real estate assets in
these emerging markets that the larger
capital pools would typically avoid.
-
Exportation of North
American expertise
- I believe career opportunities in a
globalizing real estate community are
immense. The world real estate community
puts a great deal of value in North
American trained real estate and
construction expertise. It’s not unusual
for major retail centres and office
complexes in emerging nations to hire
North American expertise to build and
manage them. One needs to look no
further than Dubai.
Yes! Real
estate is local, and one can achieve a
promising and lucrative career servicing a
local and regional market; however if one
wants to work within the global community
whether it’s in the rarified air of
transnational capital flows, deal
structuring or down to the bricks and mortar
– the opportunities are for the taking.
REmatrix.com
www.rematrix.com
Would you comment on some of the trends or
underlying dynamics of the countries with
which you’re familiar?
Forbes
Rutherford
Let’s refer to some of the countries, whose
expatriates’ make up part of the Diaspora of
North American’s citizenry and could easily
be aggregated into private equity pools
aimed at investing in their native land
assuming of course that the risk is
manageable.
Consider:
India
–
Prior to 2005 banks and pension fund
ownership rights were severely limited,
acquisitions were completed as “all cash
deals” and primarily by the “end user.”
Post 2005,
with changes in government policy on credit
and expatriate investment, a highly educated
population with a relatively stable
democracy has shaken lose its artificial
constraints and become a global powerhouse.
Major financial players have set up in
India, the mortgage market is expanding, and
the Middle Class is growing. This has had a
direct effect on retail development. Over
300 malls will have been built by 2008.
Retail expansion and housing starts is not
the underpinning of a healthy economy but
rather its measure. India has poured money
into energy production and distribution
infrastructure to support its growing
manufacturing and knowledge based
industries. It’s a frenetic market that
adheres to business rules that are familiar
to North Americans.
China
–
A politburo with unfettered mercantile
tendencies that has little regard for
collective safety let alone individual
rights to life, liberty and property (real
or intellectual.) The political elite are
trying to reconcile the consumerist demands
of an austere and rapidly growing middle
class within the confines of a giant
agrarian serfdom that has only begun to
rebel against government sanctioned
Dickensian themed workhouses.
China sells
products and makes strategic off-shore
investments in raw commodities with client
companies. Its trade imbalance and
associated risk with these client countries
is akin to “Godzilla” walking a tightrope.
It excavates client country’s mineral and
energy wealth through ersatz corporations
and stamps its political feet if it doesn’t
get its way. Free markets and mercantilism
can not co-exist and in time will rupture;
in the meantime however Western societies
will hold their collective noses
because…”well Jiminy Cricket, you can’t beat
the price!” Wal-Mart will be building 400
stores over 10 years. Commercial and retail
structures are built on top of land leased
by the government for seventy years. There
is nothing “free” about trade activity with
China; Western consumers have traded their
country’s manufacturing sovereignty by
supporting predation.
With seventy
year land leases, there are at least three
generations of real estate careers, which
will provide all manner of real estate and
construction services to the Chinese
economy. However I can’t help but remember
the recent and very public trashing of
corporate offices by miner families when
they learned about the unnecessary death of
over a hundred miners and fathers. No pun
intended, but I believe the anger and
anguish by these families is simply the
Canary in the shaft as it foretells a
growing anger within the economically
disenfranchised Chinese masses.
As Japan and
Saudi Arabia have done and continue to do,
China needs to ship money out of the country
to offset trade imbalances. Real estate is a
convenient place to park capital offshore,
but I wouldn’t bet the farm on China’s
ability to sustain its growth without
serious social and economic upheaval. You
can tell I’m not a big fan of communist
tainted mercantilism masquerading as a free
market capitalist society.
Russia
–
The concept of “capital preservation” takes
on a whole new meaning when hiring a body
guard is part of your business expense while
traveling there. Doing business requires
sophisticated and connected associates that
can guide you through the three separate and
not necessarily equal economies in Russia.
The first two are hidden and weld great
influence – the Kremlin and the Military.
The third is the Public economy and is what
we read about in the daily press. Within
this framework, the country is undergoing a
clash of competing ideologies - reform
versus reactionary; and the people that are
outside the hidden economies vacillate
between embracing the vagaries of reform and
returning to a time of collectivist
entitlements.
Czech
Republic
–
The Czech Republic is an interesting
contrast to the Russian Republic. They’re
introducing the right mechanisms for
practicing real estate. They’ve amended
corporate structures to include limited
liability and joint stock companies. They’ve
introduced a variety of debt instruments;
and most importantly for landlord security –
lease provisions that are enforceable.
Spain
–
The Spanish worker is one of Europe’s most
productive; interest rates are low and the
country has become an attractive place to do
business. These factors may undergo some
friction if the Euro-Government enforces
Pan-European rules as a means of protecting
old Europe at the expense of new Union
members that are rapidly growing within the
Euro trading block.
Turkey
–
It sits on the margins of the European Union
looking in wanting to be embraced like a
jilted lover. Much like
the Czech Republic, it’s introduced
westernized debt and mortgage instruments;
and provides for limited liability and joint
stock companies. There are opportunities to
be had in Turkey, for instance – not one
enclosed mall exists in Turkey.
Mexico
–
With
ixty
percent of its population under the age of
thirty,
Mexico will not be slipping into zero
population growth anytime soon; unlike
Europe, Japan or Canada, which are already
there. It has a growing
middle class; and is currently suffering a
five million unit housing shortage. It’s the
third member of NAFTA, one of the world’s
largest trading blocks – need I say more
about its potential.
Japan
–
Japan’s international forays into real
estate and real estate debt were not kind to
it, however it’s working its way through and
appears to be moving forward. Its population
is aging rapidly and has entered the red
zone of zero population growth. This might
explain why Japanese REIT capitalization
is expected to treble over the near to
medium term as investment yield becomes
critical to the aging unit holder.
REmatrix.com
www.rematrix.com
How should one prepare academically to work
in a global real estate economy?
Forbes
Rutherford
Depends on the function and industry sector
your interested in. If you’re pursuing
something down at the bricks and mortar
level, an internationally recognized
designation such as the Royal Institute of
Chartered Surveyors would be advantageous in
most countries other than the United States
and Canada.
In terms of
post secondary education, apart from
business, design and engineering, an
undergrad that includes macro economics,
Twentieth century history, international
trade, urban and environmental planning; and
courses that promote lateral thinking would
be critical.
As for
post-graduate studies, once you have a
couple of working years under your belt, I
tend to favor graduates of real property
programs such as Columbia, Carnegie and
Wharton. These programs have substantial
foreign enrollment with international alumni
that are active in helping each other find
opportunities.
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