Distressed Assets – De-stress or Eustress?
Tough times inevitably create new descriptions and disciplines for old problems. In the real estate sector many companies are becoming active in dealing with poor performing developments – the increasingly ubiquitous phenomena of ‘distressed assets’. The financial crisis exposed first the obvious bad investments and unrealistic business strategies. But, as the hoped-for bounce back now seems even less likely, every organisation is facing the challenge of what next to cut, downsize or dispose of. Cutting losses is critical and managing so called ‘distressed assets’ reflects the conundrum nation states now face in needing to cut debt, bring in austerity measures and yet promote growth.
ROI has never been more critical. If cuts result in cutting muscle, not fat, then better performance is doomed. Equally cosmetic surgery may simply disguise an ugly reality. All assets need to be managed and are typically a combination of image, product, place, people and processes. Image and reputation makes or breaks the brand equity, or simply put, the capital value of any operation.
It is worrying that many of those involved in managing assets do not always see image and reputation as tangible assets that need to be nurtured and sustained. Lawyers and doctors are typically seen as distress purchases – you only use them when you have to. If you have a distressed asset, effective branding is a vital necessity in a competitive market. My concern is that investment in creating and managing a brand experience for target users is still not seen as a first priority by those who only understand more tangible measures. Loss of rental revenues, tenant sales and closures represent obvious measurable negative performance but the investment required to improve figures is difficult to justify when immediate benefits and improved performance cannot be guaranteed. The first step is to change the mindsets of developers, managements and new owners, for example, banks and hedge funds who have acquired assets through debt default or as a commercial opportunity.
Every key aspect of a development’s operation from its basic business logic i.e. why it was created, what has changed in terms of target market, profile and positioning, the competition, etc needs to be reviewed. As with all investments the short and long term ‘sellability’ requirement must be clear. Unfortunately some developers thought shopping centres could be seen as short term projects i.e. to build and sell. This basic misconception has lead to some dreadful unsellable building complexes worth less than the concrete they are built with. What works for residential certainly does not apply to a shopping centre whose ultimate value is typically a complex mix of tenant profiles, potential sales, visitor database and developed reputation.
Turning a distressed asset into a healthy profitable investment portfolio component is, by definition, an art and science. A destination venue must appeal to the emotional and rational mindsets of its target users – visitors, stakeholders, i.e. tenants, staff and partners. It must also be positively viewed by external audiences – the media, local community, vested interests, politicians and the like. And finally, it must make sense for the investors to provide the expected ROI. This represents a complex range of perceptions and aspirations but that’s the challenge if any development is to fulfil its true potential.
The key is a clear strategy for profiling and designing all aspects of the destination experience to create a real synergy of interests. This means tackling the obvious visual branding issues – profile, message, look and feel which contribute to the user experience – marketing, architecture, environments, tenant and facilities. Graphics and signage can be a simple cost effective first step. Architectural treatments and decor improvements can then be phased with remodelling as improved performance justifies further expenditure. These physical changes however, need to be synchronised with changes in the centre management culture in the way they interact with tenants and visitors. This alignment of vision and values must be real and demonstrated in the way internal communications and tenant liaison and coordination is achieved. Marketing must be on message and consistent, utilising social and traditional media and technology to best advantage. This is difficult and inevitably requires significant investment in time and money.
Identifying the weakest links in the chain is an effective starting point. Auditing the various components, interactions and touchpoints that come together to create a destination brand experience from the web site to driving out of the car park can often expose some simple issues and obvious improvements. Equally it can underline some hard realities that need more drastic measures. Either way, spending money where it counts and delivering potentially improved returns is obviously what all investors dream of.
As with all change management initiatives, engaging all the key players is a given. Unfortunately, the complexity of different vested interests and parties can make this difficult. Human nature and politics can frustrate the best strategies. If location, location, location used to be the holy success mantra for real estate, perhaps communication, communication, communication should be the parallel key principle in any comprehensive branding revitalisation strategy.
So maybe taking the example of the health sector, reversing a state of distress could be about de-toxing and de-stressing! Maybe ‘de-stress’ can become a new asset development service – understanding and defining a clear strategy for differentiation, aligning all activities, communicating and engaging all relevant parties. Sounds like I will be repositioning from branding to de-stress consulting in the future …..
P.S. An entry in Wikipedia defines the opposite of Distress is ‘Eustress’, – ‘a positive form of stress’ which could be a useful description for creating a catalyst for change and better performance. Other definitions are – ‘ a process of exploring potential gains’ and ‘a feeling of fulfilment …’. I think I’ll stick to ‘de-stress’ and leave this option to the politicians in the Eurozone!