The upside of downsizing: New business is created for construction and real estate industries

In this rollercoaster economy we are in, the changes that occur on a day to day (sometimes hour-to-hour) basis are in sharp contrast to the climate of the last several years. Even though we were all aware of the cyclical nature of the real estate industry, everyone denied the fact that eventually the bubble would burst. No one realized or would admit how far everything would fall, and today, no one can predict how long it will take to rebound. Historically, these cycles tend to run longer on the upswing than on the downturn. If the pundits are correct in assessing that we are already more than 12 months into the downturn, one can hope that we should soon be starting along the road to economic recovery. During the remaining period before economic recovery, a solid strategic practice is to downsize, cut expenses and overhead, and ride out the storm. Most of the metropolitan market has expanded, some sectors substantially, during the good economic times. It is often difficult to stop the growth, to level-off and/or even to downsize. Americans operate on the principal that bigger is better and the reality that one might have to scale back is akin to failure in the eyes of some CEOs. However, it is those executives that don't flinch or hesitate when making the tough decisions that will ride out the storm. These same individuals will be the most prepared to serve their clients during the next boom. One effect of downsizing, though hard to imagine, is the creation of new business in the real estate and construction fields. Subleasing space after downsizing can put many more short term spaces on the market, with the balance of old leases offered at reduced rents. The utilization of a seasoned program manager / owner's representative can offer an added advantage when going through the downsizing process because it allows a firm to manage the transition to a new facility without adding any overhead costs to the companies' bottom line. Moreover, the right program manager will provide a stable of competitive vendors in order to ensure that the client obtains the most competitive pricing for the scheduled work. The reconfiguration of space also creates work for alteration contractors, who not only complete projects for the prior lessee, but often do the build-out for the new tenant. Builders of new construction are either at the top of the market or waiting for the economy to turn. However, contractors who do interior alterations as a basis of their business have a constant flow of work since they complete the expansion of space during a growing economy and the reconfiguration of space during a period of decline. At the same time, the downsizing process can critically affect the vendors serving the real estate market. Failing to downsize in a timely manner can become a terminal mistake for vendors who find themselves with less work to build. Revenue can quickly plunge during a bad economy and most companies cannot support a staff working at less than full capacity. A reduction in overhead, whether a variable or fixed cost, must be done before damage occurs that cannot be reversed in better times. The upside of downsizing will be evident once companies have overcome the initial shock of the market's downturn and are operating on a lean, mean and more competitive basis. This mindset will also keep these companies keenly focused on quality and service, thus placing a better product in the marketplace at all levels. Jeffry Wengroff is the exec. vice president of HE2 Project Development, LLC, Rockville Center, N.Y.