Watermark on Leadership

Q: What does capital structure look like in these current times.

A : Real estate is a capital intense business. Kyle’s comments about being cautious about debt are on point. Our company was hailed as having a “brilliant capital structure”, the lowest capital structure in the market. However, we were the “lender’s slave” (Prov 22:7)with our size and complexity before the market deteriorated, much less afterwards when our high leverage approach put us into default. Going forward, I would reduce leverage from historic levels, and increase equity to a structure that is not targeting profits thru financial genious, but through asset performance. A structure that can stand regular cylces every 7 years ( 4 downturns in the last 30 years) . Using leverage to accelerate profits can prove risky “An inheirtance gained hurriedly will not be blessed in the end ” Prov 20:21.

Q : I need to raise capital for development of apartments in these tough times, how do I lead out on accomplish this goal ?

A : A challenge in the near term markets. Use facts not emotion to make any decision. While construction costs are coming down, market research says that net operating incomes are coming down as well, 10-15% over the next 18 months.You can buy apartments below replacement cost for the next 18 months. If you are doing this for yourself , I would consult some advisors and consider if its wise going forward. If for a third party, I would be realistic in communicating the challenges to them and have them prepare a back up plan. You should make sure that they understand the risks and outlook so that there are no surprises, ” prove yourselves to be blameless and above reproach” Eph 2:14.

Q: How do you stay motivated on a daily basis and keep those around you motivated.

A : Honest communication is critical to dispel rumors and build trust. We must keep a good spirit and not complain , “Do all things without grumbling…” Eph 2:24. We are stewards of whatever responsibilty and “to whom much is entrusted, of him they will ask all the more” (Luke 12:48). In this environment the natural tendency is to move to a selfish survival mode. Phil 2:3-4 is a great template, “… do not merely look out for yourself , but for the interests of others.”

Q: How do you handle the anxiety

A: I am a worry wart and struggled with anxiety for a number of months early on. Then , reading thru Acts as part of The Journey I saw how Paul responded to hard circumstances. Imprisoned, shipwrecked…. it didn’t matter. He stayed on point and continued to serve God in everything he did, regardless of his circumstances. Joseph, though sold into slavery and imprisoned, continued to honor God and serve Him (Gen 39-41). And God was glorified , in spite of the circumstances. Those passages helped me realize that I should be focused on serving Him and being a good leader, regardless of my ‘shipwreck’.

Q; How have you applied the principles on use of debt in your business and is it consistent with your personal application.

A: Great question. I did not apply the same principles to business as I did to personal finances. The business suffered the consequences. In our business, we became the ‘lender’s slave’. Many families were affected. “To whom they have entrusted much, of him they will ask all the more” (Luke 12:48). As a leader responsible for stewarding many employees, lenders and investors, the responsibilities are great. God doesn’t distinguish between the business or personal. We are to just follow His word.

Q: What are the greatest needs of your employees.

A :    I Tim 5:8 says ” if anyone does not provide for his own, and especially for those of his household, he has denied the faith”. The families of employees are high priority.   For an employee to fulfill this biblical responsibilty he or she needs to know what is going on and what the risks are to him/her as soon as the information is known. Employees have families to take care of and deserve to know where they stand and what the outlook is, even if it’s unclear. Never hold back information from employees if it has a chance to affect them. Don’t handicap their ability to plan and take care of their family.

Q : Is defaulting on debt to investors/lenders ever the “right” thing to do.

A : Whether the debt was the right direction to go initially , once you have Prov 3:27 says ” do not tell your neighbor “go and come back tomorrow” when you have it today”.  I take that to mean ; if you have the money to pay, pay it.  Seems like going into default merely as a ‘tactic’ is inconsistent with this verse as well as Eccl 5:5 where it says “better to not vow than to vow and not pay”.  If you can’t pay, you won’t control whether you are in ‘default’ and you are ‘the lender’s slave’.  If you can’t pay today or expect that at some point in the future you will not be able to pay , to be above reproach , you need to go the lender/investor explain where you are.  Take ownership that you can’t pay , apologize and ask for forgiveness ( Conflict Resolution) and then ask them to tell you how you can serve them with the resources that you, or the company, has. At that point you work for them.  As Joseph did, we are serve our master well and honor God, regardless of how we got to those circumstances. Give them all of the facts so they clearly understand all the issues and possibilities. Thereafter, you should continue to try to repay them, even after a default, so they don’t have a reason to characterize you as “the wicked who borrows and does not repay” (Ps 37:21).  If there is more than one creditor, you have to make sure that you don’t show partiality to one over another . That is how the court would resolve the problem and that is what James 2:1 calls us to do , treat everyone the same and not show partiality.  If it is in your business/company , you should consider getting all creditors who are pari passu in the same room and explain to everyone so they can see that you are committed to treating everyone they same and fairly under the circumstances. They will hold you accountable after that.