Getting Creative in a Business Crisis
Surviving a financial crisis with strong relationships and creative thinking.
All businesses face occasional crises, big and small. Most are of the smaller variety and are easily handled with existing systems. But occasionally a crisis can be so large it spreads fear and threatens the business itself. The old saying that “when the going gets tough, the tough get going” is a little short on details; a more helpful maxim might be, “when the going gets tough, the tough get creative and agile.” One Vancouver Island company discovered that creativity and agility could not only get them through a financial crunch, but also open up new lines of business.
The Problem
Starting in 2004, Victoria’s League Assets Corp. had grown a real estate investment trust and limited partnership operation into management of more than $250 million in assets. But panic set in in 2008 when credit – the liquidity lifeblood of a real estate management operation – had almost completely dried up.
The Solution
When League Assets was confronted with a severe contraction of credit, it shifted quickly from its emphasis on constant growth to saving and nurturing what it already had. It also looked at all aspects of how it conducted its business.
First it tackled its biggest problem: its risks and what they meant to its more than 2,500 “partners,” or investors. Previously, it had educated (with a small book) all investors about how real estate investing worked, and the firm re-emphasized it when the crisis became apparent. It also tweaked its educational component slightly and ensured that investors had even more emotional skin in the game. For example, it ramped up pre-sales of a condo project to guarantee it would be well-funded, which soothed any investor fears.
League Assets also worked diligently to maintain and expand its relationships with financiers, continually talking with lenders and financing partners – sometimes on a daily basis – to let them know how things were going, and relieve their fears of a pullback. It also connected with the three biggest mortgage investment companies in the country to determine their needs, and then worked to meet them. This did more than mollify financing partners; it actually generated a couple of deals from lenders who had acquired assets during the recession of 2008-2009.
Lastly, League got creative and persistent, creating new structures (and products) to get around roadblocks. For example, it was doing a land assembly deal that was being financed by five different lenders. When the deal was threatened by the smallest member of the lending group as it faced a deadline for the deal to close, the firm engineered a buyout of the recalcitrant lender’s position that took effect after the deal was closed. This got it over the deadline hump.
League Assets’ combination of transparency and creativity helped it weather the crisis and generated new ways of business that paid off after the storm passed. While it had about $250 million in assets when the crisis hit, it is now managing a real estate portfolio worth $960 million.
Lessons
• Tackle the easiest problem first. League Assets ensured it maintained its investor base, which buoyed the company (and its investors) emotionally, enabling it to address tougher problems.
• Be transparent. Don’t run and hide from those concerned with the crisis. Regular talking with customers, financiers, and others who have a stake in your business helps ensure they’ll back you up.
• Adapt. If the way you have been doing things no longer works, find a different way. Create new products or services, or change your processes to better address new realities.
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