Upside/Downside - Grow Your Profits and Cash Flow
Poor profits and cash flow got you down?
My name is Matt Cooley and value creation has always been central to my career, from start-ups to multi-billion-dollar product lines. As a finance executive at successful companies, I've noticed a thing or two about what creates versus destroys value. In this podcast, we explore value creation and share a few laughs on the way to higher profits and cash flow.
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I wish you the best on your value creation journey!
Matt Cooley
Upside/Downside - Grow Your Profits and Cash Flow
Ep 13: Data-Driven Decisions with Alex Kotlyarevsky, Vice President of Finance at Maxx Properties
In this episode, Alex Kotlyarevsky, VP of Finance at Maxx Properties, compares the recent real estate market to flying a plane. Monitoring real-time metrics and making timely, fact-based course corrections drive value. Getting there requires digital and cultural transformations that will ultimately separate winners from losers. Forward-thinking Finance Business Partners are in the cockpit. Fasten your seat belts and let's go!
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I wish you the best on your value creation journey and if you find yourself stuck or in need of advice, please reach out via the contact form at Upside/Downside podcast today!
Matt
Hi, this is Matt Cooley, host of the podcast Upside Downside, Kat Lurevski, Vice President of Finance at Max Properties. Welcome, Alex. Hi, Matt. Thank you for having me. Oh, hey, my pleasure. We actually know each other through Financial Executives International New York City chapter, where you, my friend, are the current president. So it's great having you here today. And just as important from my perspective to talk about the real estate market, because we haven't had that topic yet. So, Alex, let's jump into it. Please tell us about your business and how you came to the role that you have today.
SPEAKER_00:So I came to the States in 1997 with$7.25 in my pocket. And I guess I'm one of those stories. And I always knew I wanted to be in finance. I got my MBA. And while going to school, I was working my way through different companies, different positions to where I am today. I worked in a bunch of finance functions starting from the very bottom. In the beginning of my career, I was mostly with retail companies, big names, federated department stores, John's Apparel Group, and I ended my retail career with Saks Fifth Avenue. finance slash retail career. And in 2010, I always felt that being in finance, I could do it somewhere else. I never thought that the problems retail industry faced at that point were unique for that particular industry. So I wanted to try myself somewhere else, and I moved to real estate. And since then, I had executive positions in broker-dealer companies, real estate investment trusts, as well as the sponsors of real estate investment trusts. And I've been in my current role as the Vice President of Finance at Max Properties for almost four years. Max is an 80-year-old fourth-generation family-owned real estate platform. It's all multifamily rental real estate. Great people, family owners who are very committed to developing their business, and they have a very passive and stable portfolio of multifamily rental properties across the United States with heavy concentration and key growing markets and that's by design that's why we're doing well today and look my goal with the company from my very first day was transforming it from a family owned operation into modern real estate platform that can partner with institutional investors on various joint ventures as well as being as well as been in the position to accept funding from institutional investors. And you know how complex it can be when you start selling to people and especially to institutional investors. So it's been a lot of work, lots of cultural changes for the company, all to the good. And I'm very glad to be a part of the executive team that has achieved this goal. And we've made the company an attractive partner for institutional investors. And as a byproduct of these efforts, we made it a lot more stable and profitable.
SPEAKER_02:I love that. And I love how you started. You immigrated to the U.S. and not much in your pocket, but you got to work right away. And really, it's a great story. And I appreciate you sharing that. So tell us what's happening in the residential property market right now and what's driving value. This podcast is for finance business partners. So at the is sort of what we're all measured by. So what is driving value today?
SPEAKER_00:Yeah, people often ask me, you know, how's the market doing? Is it good, bad? And I always say that there's one answer in finance profession that's always correct. No matter the industry you're in, no matter the situation you're in, or question your respondent, that question is not good or bad, it's not yes or no. The correct answer is always, it depends. In general, residential rental properties properties have weathered the 2020 storm much better than other segments of real estate. There's no surprise here. Occupancies are still stubbornly holding up. They're not as high as they should be in normal times. I would say normal physical occupancy in normal times is about 95%. That's where your target should be. But nowadays, occupancies in markets that are doing a okay, maybe low to mid-90s. So we're not much lower than we should be. I was listening to Robert Kiyosaki's interview back in May, June, and he was talking about differences between multifamily rental and office space real estate. And he was very proud that his portfolio was doing quite well with 80% to 85% physical occupants. And I was like, really? 85%? That's it?
SPEAKER_02:I love how you call out Robert Kiyosaki.
SPEAKER_00:He's a great guy. I'm not trying to criticize him. I was just trying to compare the numbers. I thought that he was quoting a metric that was too low. But anyway, here comes the, it depends part of my response, right? If your portfolio is overweight in large cities, good luck to you at this point and you will need it because we all know that people are moving out of the cities at this point and there's this whole trend in suburbs that are building up residential properties. Even in my town right here, and New Jersey. I'm very close to New York. They're building several properties at the same time. So, you know, if your properties are in New York City, if you have an A-type property, your occupancy can easily be in mid-60s to low-70s. Those portfolios are not doing well at all. As you can see, lots of things depend on the types of properties you have as an investor. And markets are sub-markets you invested in. One more thing that I haven't seen many articles about this up until maybe two weeks ago when I started reading about this in the Wall Street Journal and Barron's. There's the next problem we will all be facing very soon and within a few months. We're going to have a tsunami, not a wave, a tsunami of evictions all across the United States, it's going to be millions of evictions that landlords will have to somehow absorb and go through in the first half of 2021. People get more and more behind on their rents, and the evictions moratorium is in place still in most states. We're very successful as usual on kicking the can down the road, but it will catch up to us. There's no question. So this is going to be a huge disruption coming at us in the first half of 2021.
SPEAKER_02:So question on that. So from a value perspective, obviously, if your tenants aren't paying rent, then something not so great is happening on the value side of the equation here. But With the tsunami that you're suggesting and millions of people getting evicted, is there some kind of middle ground to the standard business model that preserves some value for owners and keeps tenants in their home?
UNKNOWN:Hmm.
SPEAKER_02:Because where does everybody go the minute they leave? Any potential for income obviously stops. I'm just curious.
SPEAKER_00:Right, right. It's going to be very difficult for landlords to go through this process smoothly. Impossible, I would say, at this point. Again, we're doing quite well, but I'm looking at what's going on across the industry. And like I said, as the industry, we will need to go through millions of evictions. And I don't think there's... there's any chance at this point that people will be able to catch up. The problem is that landlords will need to evict people and replace them with other tenants, other residents, right? And those other residents may very well be the residents who were evicted from some other properties. So there's going to be a circle of evictions and move-ins and move-outs throughout the industry. And whoever is going to handle it the best and most efficiently will win.
SPEAKER_02:Right. So So from a finance business partner perspective, how do you advise your business partners in this kind of situation? You mentioned that occupancy is the critical metric, makes sense, and that can vary by sub-segment in the market. What kind of advice do you give to your boss or your business partner in this kind of situation?
SPEAKER_00:Occupancy is an important metric. It's not the only metric. operating a multifamily rental portfolio is a little bit like flying a plane without flying a physical plane. You need to look at at least a dozen critical operating metrics at the same time, like vertical speed and altitude and ground speed, because if you get off on one of them, you'll be in trouble. Going back to the example I just gave you, we can talk about occupancy of low 90s, mid 90s all day long, but if there's a substantial portion of your residents who don't pay your rent, you're in trouble because you keep a accumulating bad debt. So it's important to look at occupants and keep properties occupied. It's also important to look at your collections at the same time and see where you are. So we built... a business intelligence platform in my company that allows us to look at all these metrics in real time. And this is what many companies don't have, even larger companies and companies in other industries. We can see in real time what's going on and we can respond to it very quickly. Rather than in the past, and I know lots of companies are still in the shoes, You had to close the month, which was a month later, like a month and a half. And then you had to look at the numbers and absorb them. So you were reacting to something that happens two months ago, right? And you didn't know at any point. You had no idea what was going on at that particular point. You was looking at the numbers. It was possible that you were much worse at that point than two months ago. So we wanted to avoid that. And the work that I've done in the past four years was to come to this situation when we have a downturn and be prepared for it and have all those operating metrics ready and be able to make business decisions based on what we see in real time.
SPEAKER_02:So data driving your decisions. Absolutely. I love it. That's an outstanding example of what we should all be doing. So wrapping it up here a bit, Where do you see the finance business partner role heading from your perspective? And what should we be doing now to prepare for that future? And you just gave us a great example, but what would your broader advice be to other finance business partners, Alex?
SPEAKER_00:It's a good question. And I think we just touched on a very important topic that will affect us all in the next five to 10 years. Okay. We have discussed multiple times at the FEI events, we spoke about ever-changing role of the C4, right? And I like how you call it finance business partners because that's what everyone is supposed to be. You nowadays deal with accounting, reporting, compliance. FP&A issues, you name it, and they will stay with you as long as the government stays with you and its regulation states. That's for
SPEAKER_02:sure.
SPEAKER_00:But I think that the next big thing that will disrupt everything and will separate winners from losers is going to be data analytics. Think how quickly things change. We live in this big data time. We have more information floating around somewhere than we ever had in the history of mankind. probably, and easier access to it. And those companies and those teams that will recognize this trend that they need data analytics inside their companies, it's not only for Google, it's not only for Facebook, it's not only for the marketing and advertisement business. I think we're going to the point where every company will need it eventually. And they will need to understand why the type of data they need. They will need to understand where to get it, how to get it, how to implement business intelligence solutions platforms in their companies, how to analyze the data and be the ones at the end of the day, operating more effectively. And there's a lot of cultural change for each company that comes with it, okay? Because in many cases, I'm not just talking about Macs, but I've done it in several companies prior to Macs, right? You come and you try to understand who your client is and no one knows, right? And you start gathering the data and then no one likes it because, you know, actually you need to put metrics in place and people need to start operating with those metrics in mind, right?
SPEAKER_02:Well, and particularly when you start corralling data from multiple units, right? You take the finance data, you take the sales and marketing data, maybe manufacturing, if that's part of your company. Absolutely. You pull it all together and you start looking at it horizontally. That's when you, in my experience, you learn quite a bit. And it's interesting that so many companies have still not really taken that journey yet. Right. But from a finance business partner perspective, what do you see as president of the New York City chapter of FEI? You interact with a lot of finance folks. What do you see happening?
SPEAKER_00:I try to outline as much as I can that I know so many great, smart people. Many of them are much smarter than I am, and I enjoy talking to them because I never like to be the smartest guy in the room. But I try to outline to them that their job is no longer to close the month quarter, file 10-Q, and think that everything else is not going to be their problem. I reject that view, and we keep talking about the fact that financial executives at this point are exactly what you said. They're finance business partners. They need to understand every part of their business, They need to understand data very closely. And in my mind, and this is what I always say, they need to prepare for the downturn times. We are in these downturn times now, but a year ago we were not. And sometimes when we were talking about this, I was getting like blank stares, like, what are you talking about? Things are great. Well, things are not going to be great forever, right? At some point, we're going to go down in different directions. Maybe at different times, maybe for different reasons. But you need to become, you know, partial chief operating officer of your company, an HR person, an HR executive for your company, and so on and so forth.
SPEAKER_02:Right. I know it's much broader than it's ever been before.
SPEAKER_00:The only thing that kind of derails my whole point I'm trying to make here is that I keep talking about long-term and about long-term benefits for their companies. But with the average tenure for C4 in the United States below two years, I think it's one year and 10 months, I think it's very difficult to talk about long run here, right? If people come to your position and leave quickly, then I don't
SPEAKER_02:know. There's an intellectual discrepancy there. And one of the ambitions I have for a future guest is to have a high-level executive Thank you. the future of finance business partnership.
SPEAKER_00:Thank you, Matt. Thank you for having me. And as always, it was a pleasure to speak with you.
SPEAKER_02:All right. Pleasure has been mine, sir. And thank you to our subscribers for listening to this episode of Upside Downside. We will see you next time.
