The COVID crisis is throwing up all kinds of challenges for the real estate industry. Some of these are rapidly accelerating trends that we’d recognised well before the pandemic, but others are entirely new. Bohill Partners are hosting a series of events bringing together senior industry leaders from specific areas of the industry to share their thoughts on the critical issues that they are dealing with.
In our latest round table event, we moved away from examining Covid-19’s effect on specific sectors – retail and office – this time zooming out to look at the impact on culture and operations. Along with the rest of the world, the real estate industry has been forced into relocating their work life into their homes, now reliant on seemingly endless Zoom calls to meet operating partners and keep in touch with colleagues. While the forced experiment has required us all to adapt, the tangible nature of real estate as an asset class means that it is facing its own particular challenges. We brought together a group of 15 senior leaders from prominent private equity real estate platforms to discuss how best to sustain a culture and way of working.
A good relationship can supersede a good deal. The wrong deal with the right partners is a lot better than the right deal with the wrong partners
In times of instability and uncertainty, our natural reaction is to take as much control as possible. The GFC saw real estate investors manage assets more closely both through increasingly hands-on local teams and upping their influence over local partners. But how can an amplified level of control be achieved when travel is removed from the equation? For firms running a centralised model reliant on local operating partners, Covid-19 has emphasised the importance of a trusting relationship. Just as societies have come together to support each other through the crisis, real estate investors and operating partners are higher touch and more reliant on each other to negotiate the stormy waters.
It’s easy to understand why those firms operating a centralised model are wondering whether it’s time to shift tack to boots on the ground. While costs are harder to manage, a decentralised approach to team structure allows for continuity. But how will this experience impact team structures and operating models in a post-Covid-19 world? The general consensus is that it’s too early to say, but given how entrenched business models are, there will be less change than we might expect. That said, through forcing those in decision-making hubs to walk a mile in the shoes of their local partners, there’s a certain level of appreciation for how satellite offices can feel culturally. Being sat away from the headquarters you miss out on the informal conversations at the beginning and end of meetings that forge a level of relationship difficult to achieve on Zoom. This understanding can certainly play a part in shaping cultures across offices going forward.
Whilst a local team in a satellite office is arguably no different to an operating partner, even if the operating partner wears their own colours, our guests felt that, now more than ever, a strong working relationship and an aligned culture is probably more important than the operating model you employ. That said, achieving a cohesive culture across offices, borders and even continents is not easy.
An often repeated quote is “the true test of leadership is how well you function in a crisis”; well, the same test can be applied to a team.
Without travel, real estate has been heavily reliant on technology to replicate normality in managing its assets. The feeling of greater connectedness through video calls with our partners has been an unexpected upside of the pandemic. Indeed, the use of drones and VR technology for site visits has demonstrated just how much we can do and see from the comfort of our homes. But when it comes to pulling the trigger on new investments, some still feel there is no replacement for visiting and walking an asset to get a sense and feel for it. And as the local partner, it’s very hard to justify your judgement (borne out of years of experience) virtually in the same way that you can in person. Again, this goes back to the importance of a cohesive culture upon which trust can be built. Looking forward whilst Zoom calls cannot fully make up for in person meetings with colleagues and deal partners, perhaps fewer meetings will require a trip.
In the context of diversity, one of our guests described Covid-19 as ‘levelling the playfield’ – it has inadvertently allowed opportunity for greater diversity by proving a decentralised model can work. This has allowed employees greater flexibility in location, balance of life, and working hours that could increase talent retention, in particular among women. The challenge is how to build on this rather than reverting to business as usual.
What about the impact on individual welfare?
Some of us with heavy travel schedules have enjoyed the perks of swapping the passport for the webcam, as have our families. But, as our guests noted, using Zoom relies on an already entrenched relationship – the “serendipity and creativity that comes from proximity”. For those in isolated spaces or living alone, the office environment has become something of a nirvana. It has re-emphasised some of the takeaways we saw in our Office Sector focused round table which explored what people valued from the office; social interaction takes pole position across the board. It’s not as easy for a team to bond in an artificial setting at a predetermined time– work drinks, quizzes, wine tastings – perfect replacements in theory, but somehow never quite the same in practice. Some businesses – particularly those with larger teams – have tried to recreate the ‘watercooler moments’ on video meeting software but sticking to smaller groups and avoiding unnecessary meetings is important to stop video meetings going stale.
While lockdown has resulted in less travel and an overall uptick in quality of life for some (particularly those with long commutes and large gardens at home) it has put real pressure on others. Those who are isolated, living on their own or single parents, have had challenging experiences. Considerations for mental health are just as important as physical health, particularly when you’re restricted to your own four walls. As leaders we should share empathy and vulnerability with colleagues. Indeed, a drop in mental health has a very real impact on a team’s productivity. Some of our guests suggested forming new virtual teams to reduce the risk of creating factions as you might find in distinct ‘investment’ or ‘asset management’ divisions. This helps both to break up silos as well as preserve and promote culture and team spirit.
With increased stress at home and limited opportunity for release or escape, risk of burnout becomes very real. Some firms have actively encouraged colleagues to take breaks, and others such as Lazard, GIC and Ares have given all staff an additional set day of holiday.
We will inevitably return to the office, but how ‘normal’ can this environment be?
While some are content with home working, many professionals would like to return to the office. It’s a difficult balance to strike between protecting staff from Covid-19 and supporting our vulnerable staff needing the office environment for their own mental wellbeing. But when, how, and to a degree why? There is no one answer, but rather, take cues from your staff. Perhaps we can take a few lessons from the continent, where antibody testing kits have been offered as a benefit in kind and temperature scanners are installed at front desks. Indeed, one guest commented that the fear dissipates quickly and returns to normality, but offering perks such as a free lunch has proven popular among the workforce. But still controls are essential: such as limits of between 25% to 50% of staff in the office at one time and a weekly rotation between designated groups to allow for deep cleaning.
Thinking about ‘why return to the office?’ it’s clear that if social interaction is the key motivator, it raises questions around whether the office is the only means of facilitating this. Indeed, the crisis may have longer lasting impacts on the way we use offices, and as a consequence, the office market.
Amidst the turmoil and the rush back to normality we must ensure the topic of diversity does not take a back seat. A Bloomberg study shows that women are bearing the brunt of Covid-19 – indeed a UN report suggests that women undertake 2.6 times as much unpaid caregiving and domestic work than their heterosexual partners. Lockdown has exacerbated this imbalance. While flexible working allowances such as location expands job opportunities, the problem is still grassroots. We see more a successful diversity agenda when businesses target diverse talent pools at the university and internship level. One of our guests highlighted four simple but fundamental criteria to form the backbone of diversity policy: setting gender neutral policies; setting measurable objectives and targets; senior male role models to champion diversity; incorporate diversity initiatives into all recruitment processes.
But, like an appreciation and understanding of how our partners in localities might feel removed from the central hub, Covid-19 catalysing a collision of work and home life into one might inspire a greater awareness and appreciation from our families of what each other do day-to-day. We should all do our utmost to ensure the potentially positive impact of this learning is not underestimated or swiftly forgotten.