Utilizing Real Estate to Accomplish Strategic Business Objectives
Living in Pittsburgh, building my career here, growing my family here, is not an accident. I think deeply about how I invest my time and money. For a multitude of reasons, I believe that Pittsburgh stands to benefit from the major changes that we are seeing unfold globally. The last 3 years have confirmed for me that I want to invest my time in the people that are here. I want to invest my time and money in the businesses being grown here. I want to create wealth for my family and for others HERE. This region, and the people who are its lifeblood, are well positioned to capture the energy of the shifting tides.
What do I mean by that? Pittsburgh is one of very few cities that successfully resisted the mega-trends that left much of middle America blighted. There are areas of the country that have grown from obscurity to be wealth centers today. These places are structurally different than places like Pittsburgh that were once wealthy, but after significant economic upheaval, reimagined their futures. We have a sense of place that “new” wealth centers do not. Pittsburgh’s distinct advantage was the strength of its industrial past and wealth that was created at the turn of the last century. While Pittsburgh’s anchor institutions may have prevented its economic collapse, alone they will not be enough to ensure an abundant future.
I have spent the last five years thinking about that future. Undeniably, new business formation and attracting and retaining young people is the primary goal if we are to see growth in our region. It is a focal point for many. We do not need to be the next Silicon Valley, but what is our future as a region? More importantly, what assets and strengths do we have as a region that can help us incrementally work toward that future beyond anchor institutions? In 2017, I founded Localize Capital Management with the express intent of engaging legacy business owners to build a bridge to the next generation of business leaders in the region. Our challenge is to find ways to pass on resources, legacy knowledge, and create investment opportunities. Expect news on this front later in 2021.
During my time with Localize I have had countless conversations with family-owned businesses in the region and while each is unique, I have been struck by some commonalities. One thing that seems to be fairly ubiquitous is that they frequently have acquired substantial real estate holdings over years of operating their business. Purchased in service to the operating business, often it was relatively inexpensive. It may have been bought off-market directly, or purchased at auction with no other bidders, and with little or no consideration given to cap rate, IRR expectations, unlevered yield to cost, or other metrics commonly used to assess real estate value. They simply needed a place to make things, store things or do things… they bought it as a utility to serve a function and they could do so with fewer considerations as long as the primary purpose was being served—generating substantial revenue and free cash flow from their core business practice.
I believe that many owners of legacy assets fail to engage in meaningful and thoughtful conversations with advisors about their real estate and/or family business holdings because of endemic brokerage mentalities in the advisory world. If an advisor’s fee is based on the sale of an asset, how do you engage with an advisor when you’re uncertain about whether it is best to hold or sell that asset? Never ask a barber if you need a haircut, or as Charlie Munger has said, “show me the incentives and I will show you the outcome”.
Having worked in financial services and seen this brokerage mentality firsthand, I was acquainted with how to align interests with businesses. But I had an epiphany one day over lunch with Kevin Riley and Paige Myers of Totum Realty Advisors. The importance of their work immediately made sense to me. “Totum” is Latin for the whole. Real estate decisions are so core to everything, and holistic advice that is not strictly trying to lock down a listing or a sale is so sparse, that many people just treat their real estate as cost center and just the price of doing business. Many people I know could benefit from a relationship with a trusted advisor who can help them understand their exposure to real estate in relationship to their business and their ever-changing needs. It is for this reason that I have decided to join Kevin and the team at Totum Realty Advisors. Real estate knowledge is a central piece in augmenting my ability to service the business community. Real estate advice should be given to growing start-ups as well as multi-generational family businesses in a way that aligns the advisor with the goals and objectives of the business and drives their overall success. I firmly believe that Kevin and his team have the clearest solution and value proposition to do this. If you ask a broker or banker for advice about an asset, don’t be surprised if their advice is aligned with a transaction or new loan that makes them money. If you want advice untethered from the incentives to transact, consider paying professionals for unbiased advice in a way that aligns their interests with yours.
2021 is going to be a year of change and adjustment within every organization, don’t let it pass by without considering how your real estate decisions can impact success. If thoughts and decisions about real estate in your organization have not been a part of strategic planning in the past, please have a conversation with us about how we structure relationships to help you make strategic plans with the whole picture visible.