Letter: Forbes J. Rutherford, President of Rutherford International Executive Search Group Inc.

January 25, 2008 – Toronto, Canada

Forbes Rutherford has provided specialized HR consulting and Executive Search services to both national and international property and investment firms for the past twenty-five 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 or https://www.xing.com/profile/Forbes_Rutherford

Topic: Adjusting Your Career Within A Teetering Economy

We’ve been a keen observer of the real estate industry for twenty-five years and have experienced more than one industry cycle. The bursting of the United State’s housing credit bubble, is the result of pumping an industry with super-easy financing and profligate lending, which is reminiscent of the commercial real estate meltdown in the early 90’s. Clearly we are entering a chaotic economic period, with the reverberations seemingly chasing the time zones.

American mortgage lenders have exercised the same undisciplined penchant for writing ‘no’ or ‘little’ documentation mortgage loans in the residential industry as they did in previous decades with commercial lending. We believed then that an underlying driver was “personal performance compensation” run amok; and we believe a contributing driver for the sub-prime debacle today is rapacious personal enrichment without appropriate safe guards. Poor short-term compensation architecture that rewards fatuous results serves neither customer nor shareholder in a meaningful way but allows management to calculate bonuses against phantom value creation. 

The spillover effect on other sectors of the economy including the commercial real estate industry is likely to be dictated by the degree of optimism the American consumer has in his or her future. Clearly the Federal Reserves aggressive rate cut and an effective fiscal stimulus during the election year run up may give stocks and optimism a shot in the arm however it needs to be implemented quickly as housing is a $23 trillion asset class that is in an aggressive deflationary mode. The supply of intended homes for owners has reached a level of vacancy which surpasses all records since 1956. Business Week reports that the supply of unsold homes will carve an average of 10 percent out of home values over the balance of this year. Match this reduction in consumer asset wealth against current household financial obligations relative to their disposable income, which is just shy of 20 percent and one would conclude that the American consumer is walking a high wire.

What is one to do with respect to managing their career in an economy that is teetering weighted by a general morass of insecurity?

Check this article periodically for revisions, as my thoughts will unfold once we’re able to gauge the market’s direction. In short however – if you tend to be conservative and adverse to risk - it makes sense to me that you consider companies with a strong balance sheets and a tenant mix within its portfolio that is relatively insulated from the angst of the American and Canadian consumer. Ownership positions meltdown but assets remain and require management; tenants’ contract and shift to lower cost facilities but need modern amenities; vacancy needs to be filled – asset value erosion mitigated. Seek property owners and managers with portfolios that are well located and occupied by commercial and retail tenants that have solid, ongoing businesses and are well situated within commercial, retail and transportation nodes. In a global economy, real estate is local however the investment in commercial and infrastructure assets is international – employers with good diversification offer greater peace of mind.

If like me, you see opportunity in unsettled times – you elevate your game, stay informed, widen your network; and most importantly, you learn to recognize business opportunities, which always albeit briefly reveal themselves within the cracks of chaotic systems.

Forbes J. Rutherford, President
Rutherford International, January 25, 2008
LinkedIn: http://www.linkedin.com/in/rutherfordintl
Xing: https://www.xing.com/profile/Forbes_Rutherford

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