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The Sullivan Group Market Observer
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As one of the nation's leading sales and marketing gurus, Gary Ryness, who is president of The Ryness Company and is a 2002 inductee into the California Building Industry Hall of Fame, says that it's never been more important than now to have perspective. Having been in the industry since 1968 and having started The Ryness Company – the first ever national independent sales and marketing firm – in 1975, Gary has seen, and successfully endured, numerous downturns. So we've asked him to tell us a thing or two about the direction of the housing market:
How many downturns have you seen and how is the current one similar or different from previous ones?
I've seen many downturns, surviving the early 70s, the early 80s, the early 90s, and the tiny downturn in 2001 and 2002. All of the downturns are kind of the same, in that the first thing that happens is people believe it's going to be over tomorrow. If it's not a downturn, then they are right; yet if it is an actual downturn, where there are some negative forces pushing prices, values and consumer confidence away from what had previously been the trend, most of these cycles last a couple of years.
They're not always awful for a couple of years, but just like any cycle, it has a beginning, middle and an end. The beginning phase of any downturn is panic – because it's different. So there is a lot of finger pointing, anger and frustration. Then people get used to the idea that this is the new reality, followed by the next phase, which is figuring out what to do. Once people figure out what to do and deal with the realities of the market, then we're on our way to a cure. That's toward the middle and the end. And by the end of the cycle, the kinds of things you have to do to make a sale – the give-aways, the concessions and the buyers' incentives – are much reduced.
What are the most critical challenges that the industry faces right now?
The biggest challenge is that we have a lot of people in our industry who have never seen cycles. They don't know what they are. For instance, when you're in the middle of a burning house, you think the world is burning down and you don't realize that it is an isolated case. In other words, you don't have any perspective. I think the critical variable that is missing right now is perspective. It's never been more important than now to have people around who have seen these things before and can make rational judgments, especially when everybody else is running around like chickens with their heads cut off.
What are some techniques that you and your team are using to address these challenges?
The first thing is you have to get through all the rhetoric, all the injustice and all the confusion, and figure out what the truth is. If you're a homebuilder, your reality is not reality. You know too much – what you had to do to get the project to this point and how great the design is. And your decisions tend to be influenced by how much effort you put in, not by the reality of the marketplace.
Next, decide what your courage is to meet the truth. Do you want to sit and do nothing? Do you want to do something? The market is the market and entrepreneurs have to decide how much of the market they want, because it may come at a cost, such as making less money than you think. But your alternative is to ignore the market, hold your asset and wait for a better time. Those are the only choices – do something or do nothing.
I think the third thing that people have to do is continue analyzing what they're doing, as markets are constantly changing.
Is housing driving the economy or is the economy driving housing?
I've always felt that the housing market is a by-product of the economy; the economy is the main driver. Right now, the economy is relatively healthy. But because of some other issues, the housing market is disproportionately suffering as compared to two or three years ago when we had a disproportionate amount of gain relative to the economy. So we're probably getting more of the grief than we deserve but for the period of 2000-2005, we got more benefit than we deserved.
We understand your organization has been involved in a lot of growing urban areas. What is the short-term and longer-term future for new urban development?
The urban environment is definitely a place that we're going to be involved in for a long time. As transportation becomes more expensive and as civilizations get spread out farther and farther from the center of the jobs, we've got a decision to make: Would I rather get the home that I want in the far distant area and suffer the social (and price) consequences of the two hour commute and what that will do to my lifestyle and my family, or would I rather save the two hour commute and use that time for other purposes?
The urban areas have a lot of good answers too. It's easier to get entitlements in the urban markets, as they already have the infrastructure and the municipal government generally encourages development. So for that reason, coupled with the social cost of long-range commuting, I think there will be more building in the urban areas. But remember that the character of urban growth tends to be complicated and takes a long time to develop and build, so as a developer, you're exposing yourself to perhaps multiple cycles, not just one.
What are the most promising markets in the US?
They are all promising. As long as you're dealing with a large urban area where there are jobs, an existing housing stock and people that want to live in the area, there are plenty of opportunities. But you have to be realistic. How much is an area absorbing and what will your piece be? So know the truth and be prepared to build a product at a price point that makes sense for an urban or suburban area that you're working in. When those elements are there, all markets are promising.
How does your recent acquisition of New York-based The Marketing Directors play into the long-term strategy of The Ryness Company?
Because my partner Ed Monce and I believe in the future of urban and high density development, and we think it will be a much bigger share of the demand pie in the next 25 years, we went looking for the best and most knowledgeable person in the urban sector and that's how we ended up with Adrienne Albert and The Marketing Directors. We were able to create a common goal sheet that both The Marketing Directors and The Ryness Company were interested in and that became the footprint of making a deal so that we are one company. This also gives us a coast to coast presence, unlike any other independent sales and marketing firm.
And the expertise that we've been able to acquire through this acquisition is monumental. Adrienne and her team have been involved in tens of thousands of urban high density and high profile communities and their experience will now be applied in the West, where the urban proposition is still a question mark, not an exclamation point.
Volume 1
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"The beginning phase of any downturn is panic – because it's different. So there is a lot of finger pointing, anger and frustration."
- Gary Ryness
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