On this episode of the Deconstructed: The Future of CRE podcast Todd Jurek, Principal at Keen Realty Group joins host Vivek Kartha to talk about his long career in Commercial Real Estate, his early days after college in one of the worst down markets ever seen, and his decision a few years ago to venture out on his own with Keen Realty Group, a full-service commercial real estate firm based in Houston, Texas.

A Rough Start

Todd earned a degree in finance and got into the commercial real estate business in 1986, which was one of the worst times the real estate business has ever seen. Prior to that year, CRE was a very lucrative business. Real estate deals had benefits and incentives, such as accelerated depreciation schedules and tax benefits, which investors took advantage of. A lot of money flowed into the market and prices and profits rose. 

The resulting boom resulted in a lot of people making a lot of money, and many checks and balances in the system went by the wayside in the name of profits. Borrowing qualifications and appraisals got lax as investors profited by riding the wave. 

But markets don’t go up forever, especially if there is government intervention. And that is exactly what happened. The Tax Reform Act changed a lot of those lucrative opportunities, tax benefits, and depreciation benefits that fueled the boom. The result was a complete bubble bust resulting in an overbuilt market and the failure of more than 2,000 banks.

Todd, being fresh out of college, saw many people around him get out of the industry because it was such a rough time. But he determined that he would fight his way through it. He recalls getting some advice that if you can survive when times are rough, you’ll be successful when better times come around. 

Cyclical Flexibility

The market won’t go up forever and it won’t stay down forever either. It is cyclical, much like many other businesses. Todd learned early in his career that the best way to handle these cycles, especially when major changes come as a surprise, is to be flexible in your thinking. 

He says that the sooner you force yourself to face the reality of a situation, instead of clinging to what you hope is going to happen, the sooner you’ll be able to recover. If you have processes or deals in place that the market no longer supports, you have to find a way to adjust so you can move forward and be successful. 

Todd admits that there are a lot of interested stakeholders involved in most real estate deals, and there will be certain expectations put forth by investors and lenders. But once you have successfully navigated the troubled waters of a sudden shift in the market, it becomes easier to convince those stakeholders to be flexible. By showing them historic trends you can help them understand how the market works.

Throw Out The Pro Forma

A specific example Todd gives about being flexible and accepting what the market gives you is with rental agreements. He says that if the market drops and no longer supports the rent you’re used to getting for your properties, you may have to drop your rates, as difficult as that might be for your stakeholders to accept.

He says one of the biggest lessons he has learned in his career is that when the market is down, you need to do whatever you can to keep your tenants. He says, “You should listen to them. Try to understand what they’re going through as best as you can, so you can help them survive as well. You want to keep them in your building. “It costs less to keep a tenant than it does to find and replace a tenant.” 

He says that if you are rigid and expect to get the rates you underwrote when the market dynamic was completely different, you’re setting yourself up for trouble. A recent example was the Covid crisis. As soon as the pandemic hit, he contacted his tenants to figure out how he could help them get through it until things got back to normal.

Starting Keen

Todd spent more than two decades working primarily for larger companies, often running their property management divisions. He also dealt with many large financial institutions as clients along the way and honed his expertise in financial matters and how those businesses operated. 

Most of his career was spent in Texas, Oklahoma, and Louisiana, and his base was always in Houston. As he worked, he spent most of his time listening and learning as much as he could about the markets, the business, and how complex real estate deals work. 

In 2015 he decided he had developed the expertise needed to be competitive on his own. That’s when he founded Keen Realty Group. One advantage he felt he had was that he knew the Houston market as well as anyone, and he knew if he concentrated on Houston he had a shot at success. 

He also decided to focus on being a specialist, concentrating on property management and the associated business lines that go with it, like project leasing and construction management. He thinks being focused gives him an advantage as a boutique firm over some of the larger companies that may not have a strong presence in the Houston market. 

Closing Advice

Todd says that the most important lesson he has learned in his career was one he learned the hard way. Save your money. Because the market is cyclical, you have to save your money in the good times to be able to survive the bad. 

“When the market is up and you’re making money, save it, because when it goes down and times are lean and the transaction volume dwindles, you won’t have nearly the number of opportunities,” he says. “Anybody can make money when the phone rings, how do you make money when it doesn’t ring?”

The bottom line is when the market is up, there is always going to be a correction. Always be financially prepared for the downturn and you’ll be successful.