The Skinny:
Never lose focus on the big picture by getting lost in the details, because details can be as distracting as they are important.
What does that phrase even mean?
Idioms are fun ways to offer advice on a wide range of issues. I had heard this one many times throughout my life / career and it never stuck with me. It is kind of a funky phrase that does not make a whole lot of initial sense and is certainly not the prettiest of the idioms out there. To be honest, I do not even like the phrase as the syntax makes me irrationally uncomfortable. However, I think the lesson is very powerful.
It simply means do not get lost in the details and lose track of the higher level goal.
Sounds obvious, I know. Yet I can think of countless examples where I would be so focused on minutiae or trivial details that I would lose track of the actual objective at hand. I still see this all the time and it is a bad habit that anyone should kick early. Being detail-oriented is not a bad thing of course, but a fixation on details at the expense of the overall solution is bad. It applies to so many aspects of life generally, but here are some of the ways to make sure you apply it in real estate investing.
Deal Evaluation
This is probably the most pertinent application of this idiom in real estate. One of the greatest superpowers an investor can have is to take in a few key pieces of information (e.g. location, building condition, in-place rents), think deeply for a few moments, and then distill those thoughts into a quick and rational decision of whether there is something worth spending more of your time on. Let’s use an example of Faye Forest and Tommy Trees.
Faye Forest gets a call from a broker to catch up and she asks if they have anything interesting in the pipeline to share. The broker says yes and gives a brief rundown of the deal characteristics. It is an aging 100k SF office building that is 80% occupied and there is a high chance that all of the tenants will leave in the next 4 years. She asks for the exact location, what the big capex needs are, potential zoning flexibility, key local tenants, and of course the price. She learns that the building systems (roofs, electrical, HVAC) are all pristinely maintained but that the interiors have not been changed since the 1980’s. In-place rents are half of what a newer building would get. The seller is a small local operator who has owned it forever and just wants to move on and avoid the headache of having a vacant building. She also learns that there is a large local tech tenant gobbling up every available “large block” (say 50k SF or higher) space without fail. She now knows there is a clear path to value creation: (i) buy a well-maintained but outdated asset from a willing seller at a great price (ii) clear out and renovate the interiors (iii) lease to a well-known creditworthy tenant and (iv) sell high after the lease is signed for a killer spread. Total time to make this initial determination is ~10 minutes.
Tommy Trees also speaks to the broker but immediately asks for the current and historical rent roll, detailed historical financials, and a leasing activity report. He dives head first into Excel and Argus, modeling out all sorts of scenarios with different tenant renewals and rental rates and proceeds to spend the next four hours building a detailed IRR model with all sorts of sensitivity cases and base/upside/downside scenarios. He may arrive at a similar determination or he may not. Without the nuances about the building condition and the leasing market, it is not a very attractive deal on its surface.
Is your approach closer to Faye or Tommy?
While details are of course critical and in-depth analyses will always be run eventually, at this stage Tommy is being both inefficient and ineffective. No amount of fancy modeling will teach you to simply and clearly outline why a deal is potentially a good one or not. If Tommy’s superiors asked him what the deal drivers are, it is likely he could not summarize them and would instead start referring to his sensitivity tables.
When evaluating deals, you should very quickly be able to answer the following questions:
- What makes this deal succeed?
- What makes this deal fail?
- How comfortable am I that #1 is more probable than #2?
This is the forest approach. Always contemplating the main solution first is a vital skill that many (including myself) less experienced people take too long to properly understand. The trees, the granular analyses, are important but they should only be used later on. They serve as a double check but in all likelihood will support your initial thoughts if the reasoning was sound.
Market Analysis
I always find it interesting to compare the processes of institutional and smaller-scale investors. Institutions are major fiduciaries with billions of dollars under management and have rigid processes and rules for everything. Despite having an immense amount of talented employees, I find they are often too much like Tommy Trees. Smaller-scale investors, clever ones at least, often rely on a few heuristics and straightforward logical thinking, more like Faye Forest. If you ask each type of investor to evaluate a new market, I can promise you that they go about it in different ways.
Tommy Trees would probably start pulling up a bunch of research reports (that they pay thousands of dollars for a year) and start summarizing all of the key stats on population growth, job growth, demographics, credit, and wages in hopes to try and forecast the future of rents, values, and returns. These are all important fundamentals of course and should be reviewed eventually, but once again there is a forest to see before the trees!
Faye Forest would likely take a different approach as she would not have all the powerhouse research reports to assist her. She might instead look at a map and realize that there are clear geographic barriers to that area (mountains, bodies of water etc) and get immediately more comfortable due to the fact that supply is inherently limited. She might pair this information with some local knowledge from several smart friends who have moved to that area and adore it. Or she may not care at all about the fundamentals and just wants to know if she can get a juicy cap rate without falling into a value trap.
This is not intended to be a knock on the institutional approach. I have been in that world and there are good reasons why they need to be meticulous and rigid. The risk aversion is much higher for them than it is for smaller funds. It is not the right place to make big bets without a trove of data to back it up. The issue is that while everyone should love data and details, it can obfuscate the broader goal.
No matter where you sit, whether at an institutional firm or a smaller shop, you should always distill the key drivers first before diving in the lovely but often distracting world of details.
Fundraising
At some point in your career, you will be involved with the fundraising side of the business. Whether it is helping your firm’s investor relations department with some new presentations, or raising money for your first solo deal, securing capital is the lifeblood of real estate activity.
No matter what the situation, there is only one thing that matters and that is your strategy. Most larger firms have beautiful and professional pitch decks that are 25+ slides. Less than 5 of those slides matter. The rest, no matter how good or useful the data is, is fluff that few will look at in earnest. Why? Because people are busy and they want to know quickly what the game plan is and whether it interests them. They care about the forest, not the trees.
In my freshman year of college, each student had to present a real business idea in a format called an “elevator pitch”. This is where you have just a minute or two to explain your idea and try to secure actual money for it. Real estate is exactly the same way.
If I am an investor that you are pitching to, you only really need to answer two questions in a simple and understandable manner: (i) what exactly are you going to do with my money? and (ii) why is it a good place for my money? That is it. The first slide or two of a deck should address this in plain english. The other 20+ slides are secondary support. You should literally be able to explain your idea in a 60 second elevator ride. An internal monologue for your pitch should be second nature.
Summary:
These are just three examples of the many applications of focusing on the forest first. Details are important but distracting, both in real estate and in life. Maintaining a focus on the big picture will force you to really understand the ultimate goal at hand so that you optimize your time and avoid tangents in pursuit of extraneous details. You will also naturally train yourself to distill the key parts of any task and cancel out the noise. This will make you a more efficient analyst, thinker, and communicator which will pay massive dividends in all facets of your life and career.
