S.E.C. Real Estate Observer

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Widow Makers
Jason Mittman, S.E.C.

The recent Charleston S.E.C. meeting had several first-rate educational sessions from simple ideas to improve income, insights from Ray Dalio’s Changing World Order, and thoughts on the changing future’s impact on all of us. It was clear that our future is bright—but also has many potential pitfalls.

These pitfalls can cripple our ability to make decisions and cause damage, if we are not prepared. There are many potential issues which can have dire consequences. Below are a few to consider:

• Changes to monetary policy
• Mass exodus from employment (“quiet quitting”)
• War
• Rising energy prices
• Pandemics and lockdowns
• Political change and turmoil
• Tax law changes
• Death or divorce
• Family issues
• Catastrophic health news
• Major partnership or client issues
• Supply chain disruption
• Unexpected last minute permit denials or major changes
• Construction supply and cost spikes
• Bank terms significantly changed or cancelled
• And more

In the world of climbing, a “widow maker” is a large rock accidentally dislodged by someone above you. You and your team have trained for your objective and executed to plan, yet a widow maker kicked down (completely outside of your control or knowledge) careens toward you. Regardless of the fact that you and your team did everything right, suffer a direct hit by a widow maker and… well, the name speaks for itself.

The list of potential business widow makers above represents a small sample of potentially destructive events with significant impact to the real estate world. The good news is they will not actually kill you! A variety of challenging-to-navigate and unexpected circumstances are always occurring, and right now it feels like many of them are culminating at the same time! Any one of these, let alone a mixture of them, may have a devastating impact on our businesses, our investors, and our clients. How do we plan, solve, counsel, survive, benefit, and grow in such circumstances? The answer lies in how we anticipate, prepare for, and manage the unknowns.

During a panel conversation at the Charleston S.E.C. marketing meeting, issues related to the current evolving economic storm were discussed. Many in attendance expressed they are waiting and observing to evaluate what happens next. Fortunately, it had no impact on the deal volume and creativity during the meeting. Past S.E.C. President John Brennan enthusiastically reminded us that an economic storm is exactly where the S.E.C. shines! We are THE problem solvers—for ourselves, our partners, and our clients—especially in times of difficulty. The greater the problem, yes, the greater the risk—and the greater the reward where we can provide creative solutions.

Repeatedly, we hear the phrase “the power of the room.” It is an accurate description. All the wisdom we need to solve problems exists within the free, readily available, shared knowledge of the S.E.C. Every day we solve problems, help others, reduce the downside damage, and create wealth.

Jamie Dimon, CEO of JP Morgan Chase, stated in July (prior to several of the significant additional rounds of rate hikes): “…geopolitical tension, high inflation, waning consumer confidence, the uncertainty about how high rates have to go and the never-before-seen quantitative tightening and their effects on global liquidity, combined with the war in Ukraine and its harmful effect on global energy and food prices are very likely to have negative consequences on the global economy sometime down the road.” Additionally, he stated in early October, as have the majority of economists, that the likelihood of the Federal Reserve monetary policy achieving a “soft landing” is low and growing ever less likely, while the likelihood of a recession toward the end of 2023 is increasing. With that comes the opportunity to help our clients and all those in our spheres of influence to survive and thrive in economic uncertainty. Now is the time to prepare, learn, and counsel.

It is imperative to differentiate the normal occurrences which stress our business from a widow maker. “Normal” challenges we face include:

1. Lender turns you down, is running late, adds adverse language in the loan docs. (It’s all negotiable. Learn to make the lenders fight for your business.)
2. Appraisal comes out less than you thought. (Better to know before the closing and renegotiate as needed.)
3. Lawsuits. (Welcome to being successful! They wouldn’t come after you if you had nothing worth the fight!)
4. Insurance premiums rise; insurance claims denied. (We have multiple resources to help.)
5. Client doesn’t tell you everything, changes their mind, stops responding. (Great opportunity to improve your counseling skills and communication.)
6. Tenant does a midnight move-out and leaves the space in poor condition. (Part of real estate, what a blessing that you own real estate or have clients you can help.)
7. Construction is over budget on time and dollars. (It almost always is! Write an after-action report and improve your contracts going forward.)
8. Investors back out at the last minute. (Many opportunities for improving communication when this happens, and better to know good partners from bad in the beginning.)
9. Investors become adversarial when the deal doesn’t go as planned. (It happens. Remember those challenging partners in the future.)
10. Employees leave and take clients with them. (You are better off in the long run.)
11. Struggle filling a key staffing role. (There are many great online tools to help. Keep fighting for those key people for your team; don’t settle!)
12. Environmental issues. (Better to know before closing and eliminate the problem or terminate the deal.)
13. Run tight on cash. (remember Dischinger’s rule: Don’t run out of cash, BUDGET!)
14. Deal loses money. (If you’ve been at it long enough, you will have a deal go bad; write the after action report, explain to your partners, client, and team, and learn.)

These and more are part of our business, as is finding solutions and growing from it.

True potential widow makers require deeper strategic thought, strong what-if planning, a great team, and unabashed honesty with yourself and your team.

Poorly prepared real estate practitioners are not able to succeed in a downturn which creates room for you to pick up more clients, prove your counseling value, and make great deals. In a true widow maker event, consider the following:

1. Show up, don’t give up.
2. Breathe, stay calm, do not make rash quick decisions.
3. Emotional reactions are not your friend (see #2 above).
4. Journal as you go, to get it out of your head and on paper.
5. Exercise a little every day, to keep your brain working and your stress down.
6. Go for a five-minute walk around the block, as many times a day as you can.
7. Shower. Yes, shower. Recent studies show the process of showering is calming and often leads to great free-flowing brainstorming.
8. Stay in close touch with your friends and surround yourself with smart and ethical people.
9. Don’t let your imagination run rampant (use journaling, goals, time management, and fear setting to help you control this).
10. Control the Almond. The two amygdala (Latin for Almond) in your brain control fear. Don’t let something the size of an almond overwrite a 3.3 pound supercomputer (your brain!).
11. Read and learn daily. Feed your brain with the countless free podcasts, articles, and other materials to help you stay focused and able to help yourself and others.
12. Regularly communicate with your peers. Ask how you can help them.
13. Check in and regularly update your investors, partners, clients, bankers.
14. Do a fear setting exercise monthly (this is your what-if planning, with solutions)
15. Use an after-action-report; share it with trusted people close to you , and ask for their input.
16. Plan for success. Dream it; map it out; set goals with dates for achievement; allocate resources to the goals; use a quarterly action plan; and take action. Put your plan on the wall and review it daily.
17. Don’t be embarrassed. Ask questions. Let others know the challenges. Ask for help.
18. Bad news doesn’t get better with age. Tell your team—or client, or banker, or spouse—sooner rather than later, and get the weight off your brain.
19. Get an accountability partner to keep going. Remember, the hardest part of climbing your mountain in bad conditions is the simplest: just keep taking one step after another. It is exponentially easier with someone holding you accountable.
20. Don’t run out of cash! This is critical. Cut as ruthlessly as you need to, and remember: the first place to cut if you have staff is your own wages. The rule “leaders eat last” is critical for morale when cutting staff and expenses.
21. Stay on target. Ask yourself: Is this productive? Is it truly important or urgent? Can you delegate it?
22. Ditch the news and social media feeds. Right wing, left wing—same bird! You cannot control what they feed you on the news; you can control if you watch it. Turn it off!
23. The bombardment of emails, texts, and calls do not need an immediate reply.
24. If you think you need to send a very firm communication, draft it, share it with a trusted colleague, and sit on it until you are sure. Stress can cause communication that you will regret sending. Once it is sent, you can’t retrieve it… and burnt bridges are costly.
25. If you lost half of your net worth and income, what would happen? Sounds horrible, I know. Would you starve? Would you die? Would you lose your home? Likely not.
26. Ditch the booze and drugs. They won’t help and cloud your judgement. That 3% escape is not worth the other 97% of your time and mental bandwidth.
27. Ditch the multitasking. Time-block for project focus.
28. Listen to your gut! It often is talking to you. It might be the “almond” and you can work that out with the fear setting exercise. In the meantime, stop and think on what your gut is telling you; weigh the pros and cons; and if the choice is very clear, take action as needed.
29. Use a weighted pro / con T-chart. The answers, if data is put in accurately, will guide you.
30. Remember, old fish does not get better with age, nor does bad news. Rip the Band-Aid off if you have the bad news, get it out be done with it and can go on.
31. Improve your communication skills by listening better, confirming what you hear, and asking better questions. There is a difference between listening, hearing, and understanding. For wisdom on this, take S.E.C. Ted Blank’s course.
32. Let go of your ego and the idea that you know the right answers. Who thoughtfully sees things different than you? Talk with them, sooner than later.
33. Remember: This too shall pass. The average length of a recession is less than 1 year. You will make it, you will be stronger for it, and it will not be a widow maker!

I believe opportunity comes from solving problems. The bigger the problem, the bigger the opportunity and reward. This includes economically destructive widow makers. Do not worry about being comfortable. Being comfortable is a dangerous place to be. Comfort allows blind spots to creep in. Focus your discomfort on patiently being prepared and building your strengths to succeed.

Tools to help you be prepared include (make sure to create your own toolbox as well):
S.E.C. Educational Courses. They are all good.

• Ted Blank’s course “Understanding Your Client”
• Gary Vandenberg’s “Exchange Magic”
• Jason Dillard, any of his courses

Books and podcasts:

• The Changing World Order, by Ray Dalio
• The One Thing, by Gary Keller
• The Road Less Stupid, by Keith Cunningham
• Right Away and All at Once, by Greg Brenneman
• The Wall Street Journal’s “What’s News” podcast
• The Wall Street Journal’s “Your Money Briefing” podcast

Useful forms / exercises:

• Fear Setting exercise
• Quarterly Action Plan
• T-Chart pro/con chart
• Eisenhauer Grid

Dale Carnegie said: “If you want to conquer fear, don’t sit home and think about it. Get out and get busy.”

I hope you choose to get out and get busy.