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In the last month, I do not believe there would be a business owner in real estate that hasn’t had multiple conversations with their accountant, revised their fixed and variable overheads or forecast what their business would look like with 30–50 per cent less revenue coming through the doors, writes Nick Boyd, head of network growth, Belle Property and Hockingstuart.
In unprecedented times, it calls for unprecedented action. The coronavirus has forced many real estate professionals to look at their business through a different lens, but once you accept the gravity of the circumstances, you can focus on the opportunities that lie ahead.
A simple approach many businesses may take right now is to increase dollar-productive activities, in the hope of increasing a business market share that could combat the weakening market position.
But the harsh reality is that regardless of productivity in this climate, if the business is not structured in the right way, or the size, scalability and margins are not favourable, then the increase in productivity will not come soon enough. This is because the volume decline is a constant; it is like a roller coaster riding the dip until it returns to parity. When that will be, no one knows.
Right now, there is a lot of vulnerability in some real estate businesses. The contributing factors to these vulnerabilities are:
- High debit – loan-to-value ratio (LVR)
- Recurring revenue contributing to less than 40 per cent of business overheads (negative break-even position)
- Low margins – net profit
- Low cash reserves
At Belle Property and Hockingstuart, we have been preparing for this kind of environment without knowing it for many years.
Our approach and motto to real estate has always been “fewer better people”. This approach has forced our network to focus on efficiencies and on productivity of an individual, not a collective. As a natural by-product, this allows for greater margins within the businesses.
Natural growth was our key strategy in the first 10 years in both property management and sales. When we develop an office, we develop exceptional talent to capture market share; we want one person doing 30 deals, not three doing 10.
This strategy has allowed us to develop a network with a strong lending position so we can now enter the mergers and acquisitions segment as a key part of our next phase of growth.
In place for the last two years and led by a specialist head of mergers and acquisitions, Joe Galati, our strategy focuses on expansion for our existing franchise businesses by merging or acquiring businesses on their behalf. Simultaneously, we maintain our natural growth strategy, with head of franchise sales Andrew Robinson developing new business lines into emerging markets for both Belle Property and Hockingstuart.
From our perspective, we have never seen so much opportunity in this market. We’re being approached by longstanding businesses that understand that joining forces will reduce an LVR position; increase recurring revenue; and with the right processes, people and systems, they can increase their market share, and ultimately net profit.
While productivity should always remain a high priority in all real estate businesses — and I know the industry understands this — now, more than ever, scalability is the game to win. As they say, 30 per cent of something is far greater than 100 per cent of nothing.
By Nick Boyd, head of network growth, Belle Property and Hockingstuart
