My wife and I went to see Leonard Cohen in concert recently. The concert was excellent and if it is scheduled in your area I would recommend the investment of time and money. When we spoke to our children a couple of days later my older son was somewhat surprised that we were fans as he apparently pictured our tastes in music as more limited, directed primarily to the Doo Wop oldies groups which we admittedly have seen on several occasions.
I explained to him that contrary to his perception, our tastes in music are actually quite catholic, including opera, classical, jazz, country, R & B, pop, folk and rock, although we admittedly have not embraced the heavy metal, alternative rock, techno and hip-hop/rap performers that abound today. We were, in fact, just as likely to see a performance of Turandot or La Traviata (we prefer the Italians), concerts by Andrea Bocelli, or Sarah Brightman, the Manhattan Transfer or Susannah McCorkle, Billy Joel or Elton John, as we are a show that features Kenny Vance.
We missed the opportunity to see the Bee Gees in Miami several years ago as the show was a New Years eve performance and I (my fault entirely) did not wish to fight the traffic and drunks on the way home nor pay the premium price for New Years eve tickets. When Maurice Gibb passed away six years ago, I realized my error in judgment and vowed never to repeat it again so we have made it a point to see the “greats” of every genre whenever possible under the assumption that we might not have the opportunity to do so in the future.
Some of the performances we have seen were admittedly less than stellar. We walked out of Liza Minnelli’s recent show at intermission. In my opinion, Tony Bennett, on the night we saw him, needed a wheelbarrow to carry a tune. And my wife, who had made me promise to take her to see Barbra Streisand if she again performed in concert anywhere in North America, admitted that the concert we saw last year (fortunately for me it was in South Florida) was an occasion that we did not need to repeat. Other performances, however, were truly great concerts. Four of my favorites were Itzhak Perlman playing a small matinee venue in South Florida twenty-five years ago, the Three Tenors in Miami in 1997, Simon and Garfunkel’s reunion concert last year and even Celine Dion’s concert at Caesars two years ago during IBS, which I had agreed to attend only after pressure from my wife.
The point to this lengthy introduction is that often in life, in both business and our personal lives, we have only have one opportunity and if we do not grab it, it is gone forever. And life is too short to waste any of those opportunities.
I had lunch this week with a good friend of mine (we’ll call him Frank) who had phoned me looking for my advice on what he should be doing to make a living. He had been developing residential property in Florida for the past ten years and enjoyed some success but lately the potential was not there. In early 2006 his group purchased a parcel of land consisting of one hundred forty acres, formerly orange groves, in central Florida (north of Orlando) for $25,000/acre. At that time the housing market was booming and retirees were flocking to the Sunshine State in droves. The group proceeded to have a site plan prepared for the property yielding 444 single family patio homes and began the process of entitlement which was estimated to take 15 months to complete.
Six months into the approval process, a national builder contacted them and offered to purchase the site for $9,000,000 (slightly under $65,000/acre) subject only to final zoning and site plan approval. Frank, who believes that “a bird in the hand is worth two in the bush”, thought that the offer was reasonable and was ready to accept the deal. In fact, in his mind he was already spending his share of the profit. But his partners believed they would be “giving away the land” at that price, leaving as much as $3,000,000 on the table, and turned the deal down.
The group proceeded with the approval process and they were successful. But we all know what happened to the housing market in the past two years and central Florida was as hard hit as anywhere except, perhaps, Michigan. In the middle of this year the group sold the land back for orange groves at $2,000,000 ($14,500/acre) and was relieved to have the debt off their books. They were actually lucky to be able to sell the ground at any price. A wasted opportunity, a difference of $7,000,000, and Frank was now looking for a new business or a job and I picked up the check for lunch.
I know of a builder who opened a new community in the Midwest a couple of years back. Prior to opening the development the builder was advised by his marketing team against this undertaking, as they believed that the price and product were wrong for that location. In fact, they provided a rather thorough analysis of the market supporting that position. The builder, who has been very successful over the years doing what he thought was best, ignored the advice and proceeded with the development. Sales have been virtually non-existent. On several occasions since then he has requested recommendations about what needed to be done to increase sales; the recommendations from his marketing team, which included changing the product and the price point, have been ignored.
Although the new home market in this builder’s location as in many others has been hard hit for the past two years, and quite possibly even if he had followed the original recommendations the market response would have been less than enthusiastic, some improvement was certainly likely. But this builder did nothing, instead continuing his ill-conceived development without success, carrying the improved land and incurring in excess of $1,250,000 in interest expense. Several chances were wasted and the result was costly.
Life is too short, especially in the building business, to fail to respond quickly when the market demands action. There is a saying I use when teaching the IRM courses and discussing standing inventory, “houses are not like wine and cheese; they do not improve with age.” My intent is to make it clear that standing inventory does not become more attractive or more valuable the longer it stands; in fact it decreases in value daily. The same is true for most aspects of homebuilding. When the market suggests that an error has been made, it is almost always the proper and most cost-effective course of action to make a change as soon as possible for there may never be a second chance.
This past week this builder again contacted his marketing team to inform them that he had now decided to change the product, on at least a portion of the property, and he was requesting their opinion of this revision. They again looked at the market and the competition and prepared a brief report that summarized competitive activity and recommended specifics of the revised development including home sizes, styles and pricing and the residual land value that would permit the development to pro-forma. I was asked to review the report and I believe that it was a logical and practical approach that conservatively would yield an increased sales rate of 750% or more over the next few years.
As Leonard Cohen says, “There is a crack in everything, that’s how the light gets through”. Perhaps the crack in the builder’s ego has finally allowed the light to get through. For this builder the cost of the interest carry, while needlessly painful, was not terminal but for many other builders and developers a missed opportunity, especially in this market, may not be survivable.
And on September 7th, Robin Gibb revealed that he and Barry had agreed that the Bee Gees would reform and perform on the BBC’s Strictly Come Dancing on October 31st, 2009 so just possibly I too will get another chance and, if so, I promise not to waste it.
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