I recently led a workshop for a brokerage team on how they could survive during a period of recession and rising interest rates. Much of the workshop was discussion-based, and the conversation topics were fascinating. Some brokers were nervous, others were excited, but all of them had good ideas.
Why did this real estate company request such a workshop? The answer is simple: nobody can ignore the storm clouds on the horizon anymore.
By the way, this article is not meant to depress you. There are often great opportunities to be had during economic downturns. This article is intended to prepare you and help you find silver linings during the coming tempest.
Frankly, the “storm” is already here. The economy has been struggling with talent/labor shortages and supply chain interruptions for two years now. We have the worst inflation in 40 years. Essentials like food and energy are particularly more expensive than they used to be. Interest rates have doubled and will continue increasing.
And then there’s the looming recession, The U.S. economy shrank by 1.5 percent during the first quarter of this year. Keep in mind, the definition of a recession is “two consecutive quarters of negative growth.” Our current quarter ends in a few days. Shortly after that, the results will come out. If the second quarter turns out to be negative, well, we’re in a recession.
Even if we manage to show economic growth this quarter, the recession threat will remain as evidenced by this quote in the Wall Street Journal:
Economists surveyed by The Wall Street Journal have dramatically raised the probability of recession, now putting it at 44% in the next 12 months, a level usually seen only on the brink of or during actual recessions.
The likelihood of a recession has increased rapidly this year as inflationary pressures remained strong and the Federal Reserve took increasingly aggressive action to tame them. Economists on average put the probability of the economy being in recession sometime in the next 12 months at 28% in the Journal’s last survey in April and at 18% in January.
Some recessions are worse than others, but most are exacerbated by public fretting and media sensationalizing. Traditionally, I’ve viewed recessions the same way I view having to go to work when I have a head cold. You feel like crap, but you can still be productive. When you have a cold, life is temporarily uncomfortable, but you’re not going to die from it. You might feel crappy during a recession, but you plow forward.
But with the right outlook, recessions can actually yield better times for commercial real estate brokers. Here are a few ways that you can approach your brokerage practice during a period of recession and rising interest rates:
Double down on your prospecting – My regular readers know that I’m obsessed with prospecting. I believe you keep pushing the gas pedal even when you’re swamped with business. Regardless of your current deal flow, I urge you to prospect heavily. Keep prospecting during good, bad and regular times.
Resist the negative – Fear can be paralyzing. Much of the negativity that occurs during challenging economic periods is self-perpetuated. If you refuse to participate in fearful, fatalistic thinking, you just might make yourself immune to the recession.
Go back to the fundamentals – When you feel stressed, go back to what has worked for generations of brokers: attentive customer service, high-quality work, accuracy, timely communication, proactive prospecting, an early start to the day, making “just one more call” before going home, etc.
Rediscover the networking game – For much of the past two years, the pandemic shut down face-to-face networking. Now, most networking opportunities are back, yet many CRE brokers are still not participating. I think the reason for that is we got used to not attending events and no longer feel like doing it. We’re rusty at networking. Now’s the time to get off the couch or out of the office and show up at the places where opportunities (and clients) can be found.
Reassess your target audience – During periods of economic difficulty, it’s sometimes advantageous to change your target audience (or at least tweak it). This depends on your geographic market and real estate specialization, but there could be clients who are more or less likely to buy during recessionary periods than during normal times. Similarly, you might want to focus more on buyer representation during recessions than listing work.
And perhaps most importantly, look for buyers with pent-up demand –Certain buyers spend less during good times, preferring to save their money for when times are bad and good deals are to be had. I personally know multiple investors who have refused to buy any properties over the past few years because values were too inflated.
These cash-rich buyers could be the perfect medicine to what might ail you during economic downturns. Be sure to look carefully and thoroughly for these people, because they are sometimes hard to notice at first glance.
An age-old saying is real estate is “You’ve got to list in order to last.” Generally, that’s true, but there are times when a qualified buyer is even more valuable than a listing.
One of my real estate friends recently told me, “The era of cash being disrespected is over.” During recent times, buyers were a dime a dozen. That might not be the case much longer.