by: Josh Teague, President of Development & Investments
The ticking of a clock. It starts out softly, as benign as any one of a thousand other background noises that our minds have learned to set aside through our evolutionary filters. But as seconds turn to minutes, to hours, to days, to months…each echoing tick becomes a force, pervasive in its attempt to disrupt even the most novel of initiatives. In the world of decision-making in real estate development, nothing wreaks havoc more than the enemy of time.
For what reasons can time be so destructive in decision-making in real estate development? It really comes down to two elements:
Element #1 – Market Volatility – this element encompasses the ever-looming possibility of financial metrics moving to a point where a project becomes infeasible. There are numerous possible causes of this, but most tend to move at a fairly predictable pace with the exception of a major unforeseen event causing disruption. Remember 2008 and the associated aftermath, anyone? I do. I didn’t enjoy it. Not one bit. However, this element can be mitigated by virtue of (a) paying attention to the world around us, and (b) being responsible in the amount of risk placed on the table at any given time.
Element #2 – Uncertainty – this element is the primary discussion point of today’s newsletter and it’s critical. It has to do with simple human nature and the tie between time and uncertainty. People loathe uncertainty. So much so, in fact, that we prefer negative certainty over uncertainty. Case in point, University College London conducted an experiment testing the variable of uncertainty and its impact on one’s level of stress. The study found that participants were in notably less stress when they received an electrical shock that they knew was coming as opposed to being in a situation where they were given no advance notice and therefore uncertain as to whether any shock was going to occur. Bottom line, people feel better when they know what’s coming – even if it’s painful.
So how does this relate to real estate development? Real estate development is a business full of challenges, but the single greatest challenge is this – The real estate developer doesn’t have control! At least not when it comes to the tenant / operator making the critical decision to commit and occupy the property. Thus, the ultimate success of a project rests primarily on the operator’s ability to make a quality decision, hence why reducing uncertainty is so paramount!
Now, it’s important to note that we developers don’t shy away from projects in the face of uncertainty. To the contrary, we view uncertainty as an inevitable obstacle to work around and we’re equipped with several sales tactics to try and minimize it. For instance, some developers follow the “sense of urgency” method whereby they load up a project with resources and maintain constant pressure to try and push the operator to a decision. Another tactic would be the “best site” method in which a developer takes control of a piece of property and rolls out an impressive marketing campaign, hoping to pull in an operator who’s searching for an opportunity. However, regardless of how convincing the pushing or the pulling may be, if the operator is experiencing uncertainty in the decision-making process then the project time line is getting lengthened and the tick-tocking grows more audible by the moment…
Turning Back the Clock
The situation just described is the reality of most real estate development projects. It becomes a waiting game. Waiting for the “Yes”, the “No”, or the worst possible answer, the “Maybe” that signifies that developer and operator are both in the same unfavorable position wondering if, or when, they’re going to get shocked. And the worst part is that the longer a decision goes unmade, the stronger uncertainty grows and the chances of success decline immensely. If this is or has been you, you understand the challenges that this implies. People have enough difficulty making simple decisions, much less tremendously complicated decisions involving the expenditure of millions of dollars on top of human capital. And let’s not forget about the impact of such decisions on employees who are dependent upon the job to make ends meet, or, in the case of healthcare, the impact on people’s lives.Historically, organizations have had only anecdotal evidence and gut feelings upon which to base such complex decisions. It’s been an inexact science at best, hence why uncertainty has become accepted as the standard. And even if you’ve come up with a recipe for working around uncertainty, how many extra weeks or months has that process added to your ultimate delivery and once delivered, how confident are you that you developed the right asset in the right place with the right service lines? The truth is that even most “successful” projects are failing to maximize their potential.
A New Approach to Development
At RES, we’ve pioneered a new approach to real estate development. Rather than working around uncertainty, we’re removing it from the equation completely. We’re scientists first, sitting in the room with our clients working together to derive an actionable strategy based on what the market dictates. It’s not sales. It’s not guessing. It’s purely data-driven and a highly accurate projection of the future that maximizes potential. It’s like being a developer with a crystal ball in our back pocket.
If you’re ready to adopt a new standard and give uncertainty the boot, we have the people, time, experience, and resources necessary to help you. And that ticking clock? You can leave it where it belongs…in the background, because time is on our side.
Josh brings nearly fifteen years of experience in the development of healthcare real estate and his proficiency spans across the continuum of care including inpatient, outpatient, post/sub-acute care, and senior housing. As President of RES’ development and investments platform, Josh oversees the day-to-day management of the company and is responsible for the sourcing, structuring, and delivery of healthcare assets nationwide.
For more information, please contact: email@example.com