The Real Estate Espresso Podcast

On today’s show we are covering the fourth segment in our mini-series on business planning. On Monday’s show we talked about the company mission. We then spoke about the ten year and the three year plan. On yesterday’s show we spoke about the one year plan. Today we’re talking about the plan for the coming quarter.  This is where the rubber meets the road between the plan and the execution. Underpinning our process is the business planning process from several business books. The Book Traction by Gino Wickman. We use the Entrepreneurial Operating System (EOS), which is a set of practical tools and concepts outlined in Wickman's book to help businesses achieve their vision and goals.  The second book is the Four Disciplines of Execution, written by Steven Covey’s son Sean Covey.

Today and all this week we are talking about business planning. Within our company we have a regular heartbeat for business planning. We meet annually, quarterly and weekly to work on the business plan. The annual meeting is two full days. The quarterly meeting is a single day and our weekly meeting is held on a Friday afternoon and usually last 90 minutes. That’s separate and apart from our daily staff meeting where we review projects and action items.  In the annual plan we construct the revenue plan for the year. This is made up of the same three elements that form the 3 year and the 10 year plan.  ------------- Host: Victor Menasce email: podcast@victorjm.com

On today show this is the second in our series on business planning. Yesterday we spoke about our company’s mission and how we review and reaffirm the company mission every year when we undertake our annual planning cycle. From the company mission, we established the three-year and 10 year goals for the company. This is the long range outlook for the company’s revenue, profitability, cash flow, assets under management and net worth. This is an essential part of the planning process.  As a real estate development company, we make money by doing taking projects through their life cycle. I’m often asked how we find our deals. The truth is, I have no idea how to hunt for deals. We don’t hunt for deals and we never have. All of our deals have come to us. It’s a matter of positioning ourselves appropriately in the market so that deals come to us. Part of that involves having the business structure that attracts opportunity.  When we plan for the long term, it’s about considering the various sources of income for the sustainability of the business.  Money is generated in three different ways. There is earned income, residual income, and then capital gains. In the context of real estate, earned income comes in the form of fees earned by the consulting division of the company, and development fees from our own in-house projects. These fees don’t exists to create wealth for us as partners, they exist to create consistency and sustainability for the business. The second form of income is residual income. This is usually cash flow from operations and from rental properties whether they are residential or commercial. Residual income is fairly predictable once a project is stabilized and running on auto-pilot with permanent financing. Even then, the cash flow represents the knife edge of the profit margin. If the investors have a preferred return, the profit to the sponsors can be variable depending on how rents, vacancies and expenses unfold in the future. The third form of income is capital gains and results from transactions. The timing of these transactions is difficult to predict. The financial results are usually great when these transactions occur and the company and investors both get to reap the benefits when these large paydays happen. But if you have employees who expect to be paid every month, then it is difficult to make payroll if a transaction gets delayed. These delays are often the result of changes by the buyer. Sometimes these transactions are delayed by administrative delays at the city. Whatever the reason, a sustainable business needs to have enough of the first two forms of revenue in order to maintain stability. -------------- Host: Victor Menasce

Today and every day this week we are going to talk about the business planning process. Every year, every quarter and every week the leadership team works on the plan and the execution of the plan for the business.  It starts with an annual meeting that is usually held in the 4th quarter of the calendar year to prepare for the upcoming year. This year for a variety of scheduling reasons we held this part of the process in the first week of January.  The annual planning cycle is used to reaffirm the goals for the year in the context of the three year plan and the ten year plan for the business.  We revisit the mission of the business and either reaffirm the mission or change it. So far we have not changed it. Our mission is create communities that people feel compelled to call home.  Beyond a bunch of flowery language, the mission is really about helping guide which projects we want to undertake, and more importantly, how we want to undertake them. We have so many opportunities to fulfill that mission. When we are designing a residential subdivision, we have a choice. We can simply cram in as many units as the zoning will allow, maximize density and move on to the next. Or we can be thoughtful in the design of the subdivision and remember that people will choose to live here. 

Justin Greenleaf is the principal at Greenleaf Architects based in New Orleans, Louisiana. His firm is active in designs across the South from Texas to Florida. On today's show we are talking about designing in the face of changing energy codes. To connect with Justin, visit greenleafarchitects.com --------------- Host: Victor Menasce email: podcast@victorjm.com

Steve Suh is a practicing ophthalmologist in the Columbus Ohio market. He is also a principal at Left Field Investors, an investment club that helps educate passive investors on what makes for a good investment. He is also the author of a book: "Avoiding Rookie Errors As A Left Field Investor: 20 Lessons Learned From 14 Years Of PassIve Investing In Private Syndications". You can connect with Steve at LeftFieldInvestors.com -------------- Host: Victor Menasce email: podcast@victorjm.com

This week we are doing a mini series on value engineering, this is the process of saving money in a project, without necessarily degrading the project in terms of quality or functionality.  On yesterday’s show we talked about one value engineering optimization. We spoke about how to save money in the construction of floor systems in wood frame construction.  On today’s show we are examining one example of an additional cost that is being driven by new energy codes that are permeating the building code across North America.  There is no doubt that improvements in insulation will reduce energy consumption in a building.  The energy code in many jurisdictions is also looking to accomplish greater insulation. But in some cases, the code is prescriptive in the manner which this is accomplished. The code is prescribing  continuous rigid foam board insulation be attached outside the sheathing. Typically this extra 1” of insulation will give an extra R5, or 2” of insulation contributes an addition R10 of insulation on top of the insulation that is within the wall cavity. The rigid continuous insulation adds nearly $2.80 per SF to the exterior cost of the building. Can you accomplish the same performance more efficiently? Listen and find out. ------------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we are talking about value engineering. This episode came from a conversation that we were having internally on one of our projects. The thought process comes down to evaluating multiple ways of accomplishing the same outcome before you know which optimizations make the most sense.  ----------------- Host: Victor Menasce email: podcast@victorjm.com

Monday was the opening day of the World Economic Forum in Davos Switzerland. This annual five day event hosts many of the world’s leaders and business elite.  The WEF has earned a bit of a reputation for being somewhat prescriptive with the idea that somehow these global elites have some special right to say what is good for you and I. But if you’re willing to put that and some of the political narratives aside, there are some interesting insights to be gleaned from the WEF.  The content on the WEF website is curated in a highly sanitized way. It’s very polished and packaged. Nevertheless, there may be some insights to be gained in understanding our global economy.  The global outlook for jobs varies widely between developed economies and developing economies. In South Africa, for example, the formal unemployment rate has climbed to 30%, five percentage points higher than it was pre-pandemic. One talk focused on the global outlook for jobs specifically related to the disruption from AI. There is an expectation of 23% churn in the global job market as a result of AI in the next four years. 44% of core skills are going to be affected as a result of AI even in those jobs that are not displaced by AI.  As real estate investors, we need to understand the impact of these shifts. -------------- Host: Victor Menasce email: podcast@victorjm.com

Every year the Consumer Electronics Show happens in Las Vegas in early January. I used to attend this show every year when I was in the tech industry. Today, I don’t attend in person, but I do follow some of the innovations that are showcased at CES.  This show is not real estate per se. But it provides a glimpse into what is happening in our world from a perspective that is not necessarily being reported in the mainstream media. Some of the sessions from CES are actually available in video format to view online from the comfort of your living room. Back when I was attending CES, none of the sessions were live streamed on the internet.  There are a few themes that are noteworthy from this year's show. Some technologies have extreme power, and with that extreme power comes extreme risk.  AI is one of those technologies. Almost all of the booths at CES this year had those two letters AI somewhere in their booth graphics.  For real estate investors, CES is a pilgrimage through the world of smart home automation and smart building systems. This is where you will get to see  For real estate investors, there are some cost saving technologies that can bring some real convenience. There are new smart locks with palm reading technology. Simply present the palm of your hand to the lock and if it matches, voila, the door is unlocked. Some of the new locks also include facial recognition technology.   Headlining some of the announcements is the notion that Home Depot is about to become a major player in smart home automation. They already have a catalog of over 150 smart home products. But they are now also coming out with their own line of smart home hub, and integrations with many of the major manufacturers, along with their own products.