As senior managing director of the project management division of Newmark Grubb Knight Frank (NGKF), Tom Ruscitti has to be aware of everything from the broadest industry trends to the finest site details when it comes to ensuring successful project delivery for the company’s clients.
In an in-depth conversation with Paul Snyder, American Builders Quarterly’s managing editor, Ruscitti discusses that role and what’s ahead for the industry (and the world) at large in 2017.
Is there anything in particular you’re looking forward to from an industry perspective in 2017?
The overall design and construction industry appears to be looking forward to a market growing at a steady rate. NGKF’s research team has reported that amid the most unloved economic expansion in history, occupier demand for industrial space surged to a new record in the first half of 2016, rent increases accelerated, the vacancy rate stabilized, and construction activity was steady. Also, the office market defied the underperforming economy, racking up solid tenant demand in the second quarter that once again outpaced deliveries. It’s an upside surprise, given the recent lackluster performance of GDP, corporate profits, job creation, and business capital spending—not to mention the faltering global economy.
One point of concern is that overall business capital expenditure is already in decline, falling by 6.2 percent in the first quarter of 2016 and by 2.1 percent in the fourth quarter of 2015—the first time it has declined for two consecutive quarters since the recession. The monthly measure of business capex is also weak; nondefense capital goods expenditures excluding aircraft slipped by 0.7 percent in May 2016 on top of the 0.4 percent decline in April.
One of the things we see in this issue is companies taking on more work outside of US borders. As NGKF does international business, what do you think the importance is—particularly to the construction industry—of establishing a more global presence?
For Newmark, the decision to expand globally was made in 2006 when a business relationship was established with 110-year-old eminent London-based real estate services provider, Knight Frank. The decision was actually quite simple—if Newmark were to have the proper scale to service Fortune 100 companies, it needed a global presence. To put it in digestible metrics:
The top 20 US-based A/E firms reported that nearly $1.6 billion of revenue came from work outside US borders—equaling about one-third of their global revenue.
China’s construction market will more than double within the next decade to over $2.8 trillion by 2022, accounting for over 25 percent of construction globally.
The continued growth in Asia and a healthy US economic expansion will increase construction from $7.2 trillion today to $12 trillion by 2020.
The United States, India, China, Indonesia, Canada, Australia, and Russia will account for over two-thirds of growth in global construction by 2022
By 2018, India will replace Japan as the world’s third-largest construction market.
Of course, this type of expansion needs to be managed carefully. There are inherent risks— including knowledge of the culture, taxation laws, import/export regulations, currency flow restrictions, business liabilities, political stability, etc.
Obviously it can become tricky dealing with changing regulations from one country to another—do you have a particular piece of advice for executives who work on an international level, or even a guiding principle by which you abide?
Remember that such an expansion needs to progress at a rational pace and needs to be holistically planned and strategic, especially in countries in which you intend to set up shop. Surprisingly, having your own boots on the ground is not a necessity. One can think global, but you need to be local. This can be accomplished with in-country affiliates, or acquisition of an established entity. What’s essential is understanding how to conduct business from a cultural perspective—especially in marketing—and in a regulatory environment. Lastly, overall financial stability of the firm and investment in human capital training and tools is imperative.
This issue features several executives who oversee real estate for their respective companies. As someone with insight to that part of the business, what do you think is the most overlooked or underappreciated component of establishing a real estate portfolio?
Traditionally, from an investment perspective, real estate is almost always included in asset portfolios because it has multiple attractive attributes that may reduce the overall portfolio’s risk and/or enhance return. Just as with a financial portfolio, real estate portfolio management is also about creating an optimization model that artfully and scientifically balances strengths, weaknesses, opportunities, and risks among forms of ownership (buy/lease), types of financing (debt/equity), location (urban/rural; domestic/international), as well as the physical composition (office/retail/manufacturing/warehouse). For a typical business, second to personnel, real estate represents the next greatest annual expenditure.
However, aside from the periodic review of their leases and space plans, senior-level managers typically don’t involve themselves in the intricate matters of corporate real estate. As most are correctly concerning themselves with overall business financial performance, they almost always don’t even think that they may be able to affect a material impact on the cost structure of their real estate. They usually think that their real estate costs are either too insignificant to worry about, too technical to analyze, or too fixed to control when, in fact, they do have the ability to dispose of excess capacity, develop, and employ policies and procedures to leverage existing assets and rationalize space utilization, unwind ineffective leases, and reduce annual operating costs of existing assets by deploying more cost effective energy consumption programs. In other words, they should be optimizing real estate holdings to extract the greatest quantity of value to support their business objectives.
What aspect of your job still manages to surprise you after all these years?
Not to be cliché, but project management is not that complicated. It does not require a mastery of Euclidian geometry, nor is the execution of a Fibonacci retracement commonly needed. It’s basically deploying a client’s finite resources—time and money—in the most effective and efficient way possible. A high-performing project manager is really just an optimizer—one who understands the importance of proper and timely planning and lives by the Charles Kettering maxim that every problem well defined is a problem half-solved. To this day, I am amazed at the level of benign neglect in which a client’s project is “managed.” This situation seems to be growing exponentially with the advent of automated business processes. Even more now than ever, a true project manager needs to be adaptable, scalable, and agile enough to bugger flies at 10,000 feet.
When we talked previously for our Q3 2016 issue, we talked a lot about project delivery. What aspects of project delivery do you see most often lost or maybe overlooked in the industry?
Industry-wide, the caliber of project managers appears to be regressing into a bimodal distribution between project managers who perform under a duty of care and those who operate with a standard of care. The former most often execute their duties along a formulaic and sequential process; emulating a stereotypical DMV clerk. These are the type of project managers who provide, at best, a highly commoditized administrative function that ultimately provides little value to the project and typically results in delivery impairment and dissatisfied clients. Whereas, the latter discharge their high-value add services at a best-suited standard; employing proper processes, procedures, and controls, as well as scalable leadership qualities. These are the project managers who don’t cut corners, manage the tyranny of expectations, and are always looking at ways to improve their swing and skate to where the puck is going—not where it is.
From a program management standpoint, can you give us an example of a project that didn’t go as expected but maybe taught you a lesson that you still remember to this day?
Quite frankly, I can’t think of a project that did go as planned. Program management is best manifested by Mike Tyson’s quip, “Everybody has a plan, until you’re punched in the mouth.” Every project has an objective and a process to “ensure” success. That process, however, is only as good as how it is managed when the unexpected happens—which it always does. Project management mishaps typically don’t repeat, they rhyme. As such, I’ve found that the best-in-breed seasoned project managers almost always employ a wind-tested deployment process, which is consistently honed against the anvil of accretive lessons learned and underpinned with a unified team approach. A team of project stakeholders aligned for success along the entire project-delivery value chain. As Lennie Small said, “I got you to look after me, and you got me to look after you, and that’s why.”
What’s something you’ve learned from your time at NGKF that you didn’t expect coming into the job?
Behind the Potemkin façade of a staid global powerhouse real estate services provider, the unexpected presence of an organization steeped in entrepreneurial spirit, and drive, was a pleasant surprise. In this ever-changing global industry, and local market, those who succeed have a passion to be their best in servicing not just their clients, but also their colleagues, vendors, and consultants. Those who have the perseverance to deal with obstacles, and an everyday need to be resourceful, conduct business with an open mind, and learn, learn, learn, are the professionals who will differentiate themselves, and their firms, from those doing it “good enough.”
What do you think is one of the biggest issues facing the construction industry today and why?
Of the multiple current challenges and disruptors in the design and construction industry—such as undercapitalized companies, cash flow issues, inadequate resource planning, and supply-chain strains—the most prevalent issue facing the entire industry is the experienced personnel worker shortage. During the last economic shock, many industry professionals and trades workers either retired or left the industry completely. As the economy continues to rebound, and capital investment activity expands, the design and construction industry is experiencing a severe deficit of skilled personnel to meet the rising demand; especially at the mid-management level. The industry is trying to respond with training programs and advocating for federal and state funding for career and technical training programs in order to improve trades skills, but human capital sourcing at the professional level is becoming more and more difficult.