Housing cycles and what to do when they happen again … Lessons off the shelf from guru George Casey.

by George Casey, CEO of Stockbridge Associates, LLC

I admit it. I keep things, particularly written things.

I have an old and cracked leather copy of Nathaniel Bowditch’s “American Practical Navigator” from the mid-1800’s, handed down from an ancestor who was a clipper ship captain. I also have all 14 volumes of Samuel Eliot Morrison’s “History of United States Naval Operations in World War II” (it was the basis of the 1950s television series “Victory at Sea”).

There are a million lessons of what to do right and what to do wrong in them.

Good writing often contains wisdom about the human condition that we tend to forget unless we either reread the lessons or commit an error that causes us to learn the lesson again the hard way.

I feel that reading is much easier and more gratifying than continuing to pull pitchforks out of your rear end.

When I was one of the first project managers at Toll Brothers in the late 1970’s, we had a wooden pitchfork in the corner of the conference room where we held our weekly Project Manager Meetings on Monday afternoons. It was a reminder that one of the purposes of the meeting was to learn tough lessons from each other and ingrain them so that you did not have to learn them a second time on your own.

I had lunch with Bob Toll recently and he noted that it was still there with the same purpose nearly 40 years later. Great ideas and practices tend to stay because they work.

Recently, I was going through my “By George!” articles in an effort to catalog them as part of a website update. It forced me to reread stuff that I had written eight years ago in 2010 as we were at the bottom of the last real estate cycle.

There was one that I thought would be good to re-publish: “My 10 Lessons Learned from the Downturn”.

We have actually been on an upswing since 2009, according to the data. My internal clock says that it might be time to dust off some of those lessons. Nine years is a long time for a sustained upswing.

I am not saying that a downturn is around the immediate corner. However, at some point we all know one is coming.

When I was in the Navy, I learned that training for all kinds of eventualities during times when crises were not imminent was the best practice for being prepared when they did arrive, almost always unexpectedly.

So, it is with the “ounce of prevention, pound of cure” thoughts that I take you back to June of 2010 and a replay of my “By George!” of that time.

By George!: My 10 Lessons Learned from the Downturn

June 28, 2010
By George Casey

June, to me, always meant the end of the school year. You took final exams and tried to prove to the teacher or professor what you had learned from your coursework. Once you leave school and start a professional career, it does not mean that learning ceases. It just becomes different.

We learn from our own experiences and from the experiences of others. We learn by reading books and articles. We also learn by listening to each other and trying to put together the pieces of the puzzle that is known as life.

Learning is rarely free.

Sometimes we pay for the lessons in cash and sometimes by the gain or loss of net worth. Other times, we pay for the lessons with our careers or by observing the career challenges of others. Sometimes we pay with the expenditure of emotional or social capital. Not learning is bad. With the lessons all around you, ignoring or forgetting lessons is a great way to repeat bad experiences in the future.

I am a fan of top 10 lists. I like David Letterman’s stuff. It is cute. I like Peter King’s “10 Things I Think I Think” in Sports Illustrated, too. Somehow, he usually cheats and gets 20 things in by using subparagraphs. I guess that is journalistic license.

Before the summer starts in earnest, I thought that it would be a good idea to write down 10 things I think I have learned from this prolonged real estate downturn. It is kind of like my own final exam. Just closing the book and thinking about what wisdom I have gained over the past couple of years.

I have learned way more than 10 things. But, forcing myself to 10 at least keeps a lid on it, forces me to choose, and keeps this article from evolving into “War and Peace”.

Plus, I don’t cheat, like Peter King does.

In the movie “Top Gun”, the commanding officer (Viper) counsels Tom Cruise’s character (Maverick) after the fatal crash that killed Maverick’s sidekick (Goose): “A good pilot is compelled to evaluate what’s happened, so he can apply what he’s learned. Up there, we gotta push it…. that’s our job.”

In business, we also have to “push it” in order to be successful, so there are ample opportunities to learn from.

So, here are my ten, in no particular order of relevance. 

  • When the cabbie is doing it and telling you about it, it is a bubble. Get out fast. In the late 1990’s the cabbies were telling me what tech stocks they were buying and how they were going to retire on their wealth. In 2005 they were telling me how many houses they owned and how much money they were going to make flipping. To exercise this tip, you have to take cabs more than once a year and it probably should be in a big coastal city.
  • Beware apparent truths that are easily financed. “Owning your own home is the American Dream.” “You have to have a college education in order to be successful.” “You should trade your car every 3 years.” “Buying today and paying tomorrow is ok.” Each of these ideas became accepted truths in the US economy and was enabled by relatively easy-to-get financing. We know what happened to the housing and housing finance markets. The expansion of universities and university budgets is just starting to unwind and student borrowers are finding they have a load of non-dischargeable debt and no job. Car borrowers are finding their auto loans are way more than the value of their cars. And you know the story of credit cards and consumerism.
  • If you don’t understand it, watch out and get out. It will probably end badly. None of us could understand how borrowers with no income could get approved with no documentation. Nobody could really explain CDOs and synthetics. Nobody could understand how the combination of B tranches could be rated triple A. Nobody could understand how public builders could be making money paying those kinds of prices for land. Not knowing and understanding was a good clue to run.
  • Find reality and deal with it fast. Have a source of good and dependable numbers and act on them. Spend time walking around and talking with your lowest paid employees. Talk directly to your customers. From all of this, develop a viewpoint of the reality that is facing your business. Then, act quickly on that information. Those who acted quickly tended to do better than those who just waited and wished for a return to normal.
  • Cash is King. Businesses need cash just like humans need oxygen. If you are not managing cash and projecting cash regularly in good times and bad, you can get in danger quickly. Forget the GAAP stuff. If you run out of cash, you die.
  • No Sell, No Eat. Revenues from sales give you cash. When it gets tough, you have to focus the organization on selling and bringing cash into the business. It astounds me how many builders did not (and still do not) get this. When it started to slow down, they abused their sales people, shut sales offices, and deconstructed sales management. If it is getting that bad, the senior management should move to the sales offices and sell when a customer arrives. There are always sales to be made, even in the worst of times. Having weak (or no) salespeople and de-motivating them is just plain stupid and ignorant.
  • Don’t be afraid to change the organization. I have often said that organizations tend to do the things they are organized to do. What needs to be done in troubled times and is critical to do is different than in good times. To think that the old organization (both in terms of organizational structure and people in the organization) can just shift to the new tasks without change flies in the face of Einstein’s observation that the definition of insanity is doing the same thing over and over and expecting to get a different result. You need different results, so you need fundamental change to make it happen.
  • You can’t cut too deep, too quick. Whether it is people, budgets, prices, product lines, advertising, or layers of the organization, after all is said and done those who acted quickly and cut deeply did better than those who dawdled or did death by a thousand cuts. The corollary to this is that in good times really be careful in hiring.
  • Know what business you are in and capitalize for it appropriately. Merchant home builders buy a lot, build a house, and then sell it. Having some level of debt is okay in that environment. The assets are short-lived and relatively liquid. Land entitlement and development are long term propositions with a lot of time risk. They are best financed with all equity that can wait out a downturn or slowdown. The biggest blowups over the past several years were merchant builders who evolved into builder-developers and they (and their banks) continued to finance as if it was still a merchant home building business. Most of those cases led to huge losses for both the builder and the bank and, too often, one or both of them going out of business. As my old friend, Isaac Heimbinder, noted in 1986, “You can buy more land in an afternoon than you can get rid of in a lifetime.” Post that one on a wall above your desk and look at it every day.
  • The only thing you can truly control each day is your attitude. The attitude that you use to approach each day and its challenges and rewards is entirely within your control. It exudes from you like perfume from a flower for all nearby to either enjoy or avoid. If you approach each day positively and work at finding what is good or right with people and events, even the toughest of situations holds some benefit. Think of the civilians, soldiers and sailors who spent years in POW camps or other confinement or today’s military in a war zone. What you have to deal with daily pales in comparison and you should be thankful for that. Those who somehow find the glass half empty or who complain and find fault with others just are not inspiring to be around and their organizations tend to be lousy places to work. The positive people seem to have better organizations around them and that edge can be the difference in both good and bad times.

I am sure that each of you could come up with your own list and I encourage you to do so. Mine was based on my experiences, which were limited. Yours will be different, I am sure, but, no less important.

I did a list in the early 1990s after that downturn, and it helped me as this downturn began. Some of the old lessons still endure, but there were new ones added from this experience, too.

So, before you head off to the beach, the mountains, or the confines of your back yard, take a piece of paper and write down what you have learned. Even better, if you are in a work environment, have your team do it together over lunch. You may be surprised at the results.

At least remembering the lessons provides some value for the future. Take your list and pass it on to others. Talk about it while it is still fresh. I would love it if you sent me a copy, too.

You will need the lessons again in a couple of years; probably around 2018-2020.

General Patton said he hated paying for the same real estate twice. You should feel the same about paying for the same lessons again in the future.  

It is a smart thing to do.

So, there we go. Nine years of history under our belts since then. Interestingly, even back then I suggested that the lessons might be needed about 2018-2020.

Here we are.

It is still a smart thing to maybe dust off your old writings and memories and experiences and begin to mentally prepare for what will be coming next. Maybe not this year or next; but smart people prepare anyway.

Originally published in Builder Online on March 27, 2018 and can be found at

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