Challenges of Growth While growth is the plan of action, there are pros and cons with every deal. With so much growth so quickly, the obvious challenge is integrating the new properties into the current portfolio, says Hammer; in 2000, the company grew by approximately 9,000 units. The positive side of growth for Kushner Cos. was the company’s ability to capture the markets at a favorable time – in terms of interest rates and market conditions, he says.
“Letting the organization catch up to the acquisition is always a challenge,” agrees Kushner. The company wants to make sure that the new units are properly managed and integrated. Another challenge for the company is obtaining good leaders in the field, says Kushner. With dot-com fever, it was very difficult for real estate companies to recruit the leading professionals because the top, aggressive, talented people were lured to tech companies with great stock options, he explains.
However, Kushner feels the company is meeting that challenge today. “We have hired the best people and we’ve made them an integral part of our organization,” he says. “They feel like it’s their organization. As a result, we have very little turnover compared to industry standards.”
As a private company, Kushner Cos. is faced with additional challenges when acquiring public companies. Like any business, the corporate culture is going to be different. But when acquiring a public real estate investment trust (REIT), the company has to go through the process of converting everything into a private format.
Back in February 1999, Kushner Cos. attempted to acquire Berkshire Realty Co., a public REIT, which was eventually acquired by Blackstone Real Estate Advisors and the Whitehall Fund of Goldman Sachs Group Inc. and turned back into a private entity. That experience exposed the company to the intricacies of buying a public REIT.
“There was a whole host of issues that are more corporate in nature than real estate in nature, which I really wasn’t exposed to,” Kushner admits. With the Berkshire experience under its belt, the company is able to deal with many of the corporate issues that arise; for example how to utilize and satisfy operating partnership (OP) unit holders.
When purchasing a REIT, whether private or public, a company must be capable of developing a strategy to deal with an entire portfolio, which is not the case when dealing with single assets. Additionally, because of debt structure, says Kushner, when purchasing a public company you need to consider long-term vs. short-term hold, and spinning off assets – which to keep and which to sell.