Years from now, when the next generation of real estate professionals comes into its own, the overindulgences of the 1980s will probably be considered a textbook case in greed and hubris. What the textbooks may not point out is that by the early 1990s the real estate industry had practically re-invented itself.
It had to. In the late 1980s and early 1990s, developers watched helplessly as demand for speculative buildings withered away and the value of existing properties plummeted to a fraction of their replacement costs.
Thanks to the recession, waves of corporate and industrial layoffs produced shrinking space requirements, adding millions more vacant square feet to the nation's already bloated commercial inventory.
As legions of owners defaulted, the troubled loan portfolios of insurance companies, banks, pension funds, and other institutional investors swelled. The federal government became America's largest landlord through the RTC and FDIC.
Property and asset management became the field of choice in real estate. For many developers and investors, it seemed the only choice if they wanted to stay in the business.
Meanwhile, managers already in the business found their jobs changing dramatically. The shift toward institutional ownership meant higher standards of financial reporting, operating procedures, training, and client relations, with a major emphasis on value enhancement.
The property management industry was changing, too. Firms were consolidating, merging, or forming regional or nationwide networks in order to position themselves for institutional business. Smaller firms were finding it more difficult to compete unless they established a strong local presence.
Meanwhile, large institutions, which had been providing management only for their own holdings, decided to branch out into third-party fee management.
And if these trends were not enough, corporations began "outsourcing" the property and facilities management functions previously performed in house. Some of these corporations even became investment partners in the property management companies they hired, contributing needed capital and general business expertise.
All of these changes will soon become history to the property professionals of tomorrow--studied for clues on how to survive in future real estate cycles. Perhaps the biggest lesson from the real estate revolution of the 1990s is that those who are willing and able to adapt will not only be considered the survivors of a difficult era, but the innovators and industry leaders of the future. …