Does Strategy Determine Culture in a CRE Firm? Or Is It the Other Way Around?

Many CRE organizations were started by one or a group of entrepreneurs or spun off from a larger corporate type of organization. These organizations include private real estate equity firms, brokerage firms, development firms and consulting and advisory firms. Many of these firms have well established operating and investment strategies that guide the firm. For example, a private equity firm may raise funds from institutional investors and invest in core, core-plus, value-added, and opportunistic apartments, office buildings, retail properties industrial warehouses, hotels, and senior housing deals or in distressed debt. Another may be a local brokerage firm that specializes in the sale of net lease investment projects and another may be a national real estate development firm building office buildings or a pension consulting and advisory firm. 

As real estate firms grow from one or a small group of entrepreneurial founders, they evolve with an established business strategy and a certain business culture. In analyzing the operations of these firms, many think that the strategy of the company determines its culture. However, I posit that it is the other way around. The structure or culture of a firm determines its strategy. That is, the culture embedded in the firm dictates its business model, growth, hiring, management policies, operational strategy, and real estate program. This may sound counter-intuitive, but it is true in many instances, especially with real estate investment, development, and service type firms. As real estate firms grow and their strategy becomes successful, they often build up a corporate structure that gets more and more consistent, but eventually inflexible, and inefficient. Even though the company is growing and profitable its operations and personnel policies become insular. How many times have you heard executives at a real estate company say, “this is how we do things here” or “it’s our way or the highway” or “we only buy core properties in core markets” or “we only hire the top students from Ivy League schools?”