Ethical Marketplace Archive

The Business of "Yes"

Sunday, February 1st, 2009

I desperately needed to doodle. Or scream. Or just plain bolt the room (which I finally did). I was in Boston this past week, at a meeting of well-intentioned sustainable real estate developers and a nascent socially-responding financing group, talking about creating a different type of fund that would truly address environmental and communal needs. The intent was good. And yet here I was, a long way from home, listening to a highly self-regarded developer drone on and on about how his development would be the answer to everyone’s prayers, were it not for the perverse practices of the financial markets.

What is it about us real estate developers that makes us the wildebeest of the human kingdom, a cross between the narcissism of the master architect and the hucksterism of a used-car salesman? More to the point, at what point are we going to get beyond railing at all the damaging practices of our profession (and there are plenty) to embrace some of the big positive ideas now floating out there among policy-makers and thought-leaders?

To be fair, our meeting that day was moving us in the direction of “yes.” I think we all recognized, eventually, that we needed a funding mechanism that connected rather than siloed investors, fund managers, developers, and community stakeholders. And that rather than a short-term exit strategy, this fund needed to be flexible enough to stay invested for the long-term. And that this fund needed to be robust enough to provide not only equity and debt but additional tranches of capital to assist with community programs, land conservation strategies, and the like.

So, despite my general fidgetiness and lack of patience over being lectured to by one of my colleagues, we were making some ground. And, who knows, we might just come up with the Big Idea for responsible property investing. If so, it might well behoove us, for once, to look beyond the self-absorbed enclave of our own profession to some visionary concepts now being floated out there. I can think of 5 that merit serious attention:

  1. The creation of trusts for our commons ─ natural, social, and communal. The concept comes from Peter Barnes’ brilliant work Capitalism 3.0 (2006) and provides a roadmap for how to upgrade our economic operating system, serve as trustees for shared resources, and redress social inequities.
  2. Linking economic stability/job creation to a green agenda. This concept is already starting to get a good bit of play in the Obama administration. On the up side is the $100 billion of economic stimulus slated for green projects. On the potential downside is the Congressional Budget Office recommendation that we waive requirements for environmental review in order to accelerate infrastructural spending. The two need to go hand in hand. Van Jones’ recent book The Green-Collar Economy points the way for business-environment synergies.
  3. A strong carrot-and-stick governmental agenda on energy, adopting either Gore’s bold goal of 100% alternatives by 2018 or the still challenging goal of “80 by 50” (80% carbon reductions by 2050). An important voice here is George Monbiot’s Heat, which looks at strategies for the UK to reduce its own carbon emissions 90% by 2030. On the table are the following: a carbon tax or cap-and-trade policy, long-term dependable incentives for alternative forms of energy (while eliminating perverse subsidies for oil, gas, agribusiness), establishment of a federal renewable energy portfolio standard, tax credits and government loan programs for energy retrofits of commercial and residential buildings, investment in transportation infrastructure focused not on roads but mass transit, investment in a smart-grid system.
  4. Looking beyond national borders to global solutions, primarily by linking issues of poverty and basic health to environmental stewardship. The go-to read here is probably Jeffrey Sachs’ Common Wealth.
  5. At the other end of the spectrum is localization: Taking stock of the unique assets of place and people and leveraging local uniqueness to keep capital within a community for all in the community. Michael Shuman’s The Small-Mart Revolution and Wiland & Bell’s Edens Lost and Found provide good pragmatic approaches to shaping collective action at the local level.

Bottom line: There are some brilliant, positive, can-do ideas and practices out there beyond the narrow confines of my own real-estate profession. We simply need to shed our not-invented-here parochialism and embrace some of the best thinking coming from other sectors of society. Couldn’t think of a better time than now to make that happen.

Rewiring Our City's Circuits

Sunday, January 25th, 2009

Rumors of the death of Circuit City had been circulating for well over a year. First, a potential purchase by Blockbuster went, well, bust. Then, the resignation of its CEO (Sept. 2008), followed by the shuttering of 155 stores and the filing for bankruptcy protection (Nov. 2008). And then poof, almost without warning, the recent decision to liquidate all 567 stores and the addition of 30,000 souls to our growing unemployment woes.

I have to admit: the speed with which this happened completely threw me and my colleagues. Circuit City is ─ or was ─ one of our tenants, located in the first LEED retail shopping center in the country. It was a high-performing store, among the highest in the nation. And one of the reasons for this particular store’s profitability was its lower operating costs, the result of numerous energy-saving strategies we had employed in building it out. Our thinking was this: Circuit City would get rid of the dogs as part of its re-organization plan and hold on to its remaining gems, emerging from Chapter 11 smaller, hopefully wiser, and a credit-worthy tenant. I’m guessing several major REITs with significant Circuit City stores in their portfolios were thinking similarly: DDR, with 1.7 percent of its total revenue dependent on this retailer, Kimco, with 1.5%, and a slew of other bigees (Simon, Vornado, Weingarten) all saddled with sanguine hopes that the business would make it.

Boy were we wrong. What the hell happened?

The first thought concerns changes in bankruptcy proceedings. Years ago, companies filing for Chapter 11 had years to develop a reorganization plan. This was great for bankruptcy attorneys, who made off like bandits, siphoning off obscene fees to the detriment of creditors. It was probably good for companies trying to reorganize, since they had considerable time to come up with a plan. It sucked for landlords and owners, who were stuck in limbo, unable to make decisions regarding their holdings. The new bankruptcy laws are now streamlined, which in this economic downturn simply does not allow much time for companies like Circuit City to come up with something viable. Maybe the pendulum has swung too far back in the other direction, from being far too lenient to being far too severe. By the same token, it may be fair to say that companies like Circuit City that live by the sword of hyper-speed growth through over-leveraging, die by that sword.

A more probing explanation for what happened looks to Circuit City’s business plan, which has been described as the “monkey in the middle,” stuck between deep-discount behemoths like Wal-Mart and the more disciplined focus of Best Buy. Circuit City took on enormous debt without restraint, was beset by mismanagement, and choked on its own overweening ambitions. An old story of greed at all costs.

But I think we need to look deeper than this. We need to consider our willingness or desire or simple complacency to embrace a type of homogenization of place, where REITs are hell-bent on placing investor capital as fast as possible and hence partnering with a plethora of retailers also hell-bent on using their own investor capital to open up new stores at a geometric rate. The result? Between 1970 and 1990, there were 25,000 shopping centers developed, or about one every 7 hours. Every hour of the day, something like 45 acres of farmland is converted to development, with more than a million acres a year lost to roads, urban sprawl, and parking lots. And what do we have to show for it but a tapestry of neon Anywhere-villes USA, with a loss of a sense of community and place, lives of ever-greater commuting and wastefulness, of carbon emissions and social isolation and declining health. The story is a familiar one.

The specific story of Circuit City is a sad one, of greed and unbridled growth resulting in a loss of jobs and empty storefronts. It is a story we will probably see replicated with other retailers in the months ahead. And it will have its effect not only on big REITs but small development companies such as ours that also got caught up in paying too much attention to banking demands for so-called credit-worthy tenants.

My hope is that the specific story of Circuit City will serve as something of a morality tale, one that will teach us to rewire the way we think of our communities, the ways in which we attend more to local businesses that need our support, the ways in which we address growth as something more long-term and more deliberate. Perhaps this specific bankruptcy will teach us to re-wire our own circuitry as communities where lasting value is found in more than the latest electronic gadgetry.

Accelerating Toward Embarrassment

Wednesday, January 21st, 2009

Raquel Colby sat down next to me on the plane the other day as I was returning home to Savannah, GA. You don't know Raquel. Neither did I. But she captivated me with her story, which focused on a serious illness she had almost a decade ago, the need to create a circle of friends that would help her with the daily challenges of raising her three kids, and the evolution of this expanded "family" of parents and kids all of whom created this informal collaborative routine of babysitting and carpooling and cooking and cleaning. Raquel's overarching philosophy? Accelerate toward embarrassment. Which she explained as a confluence of thoughts and actions having to do with overcoming the fear of asking help from neighbors, learning the skill of taking as well as providing, being completely at ease with who you are as opposed to the person others expect you to be, putting it all "out there" as it were.

I could not think of a better and more timely concept for the present. Or for running a sustainable business. Or for providing the background for Living Above the Store, which is about leveraging a business to promote stewardship of land and community.

As a kid growing up in a family-run grocery business in Savannah, I used to hate the fact that whenever my family went out to eat on occasion at Williams Seafood, dinner was an ongoing meet-and-greet affair with neighbors and friends and business acquaintances. I think my dad's outgoing, easy, loud manner was matched only by my own desire to crawl under the table and hide. Today? While I will never match my dad's extroverted style, I think his approach to life generally and business particularly has resulted in our real-estate company's embracing principles and practices that — at least until recently — were viewed as being "out there."

The story of our evolution into becoming a more sustainable business is a long one. But it basically comes down to conquering our own fears. Over the years, my colleagues and I have wrestled with being labeled tree-huggers, with taking a strong stance about not building in greenfield areas and focusing on urban core development, with signing on to the 2030 Challenge to significantly reduce the carbon footprint of our buildings, with slow, deliberate growth. How would we be viewed by others in our profession, by the community at large? Would we seem polly-annish in the eyes of others, feel embarrassed by ideals that just didn’t seem to be “business-like”?

Warren Bennis, in one of my favorite books on business leadership (On Becoming a Leader) writes brilliantly about the need for us to un-learn what we have been taught, in order to re-learn what we have always known intuitively to be true. We know, I think, that we have substituted lives of consumption for the more meaningful activity of celebrating the type of community Raquel Colby describes. We know, I think, that business has a purpose beyond a financial bottom line. We know, I think, that Einstein and Bucky Fuller and others were right in saying that the same type of thinking that got us into our current financial and environmental crises is not what will restore us to who we are, who we can be.

A different direction, a different sort of growth, a different sort of acceleration is called for. One that embraces the collaborative, communal ethos that my seat mate so generously shared with me the other day. One that accelerates us in the direction of being the type of company we have always known ourselves to be. One that accelerates us past the point of being constrained by the odd looks we get from others, as we move beyond conventions that no longer work or that never worked. One that moves us to share our stories with total strangers ─ as Racquel did, as I am doing here, perhaps as you will do as well.