Week 3: From Real Estate Management to Rooftop Farm

If our entrepreneurship week surprised me positively, even more so did the week concentrated mostly on sustainability. This was our third and the last week in NYC and it consisted of ten different sessions/company visits. In my final blog post I will focus on the day (Wed June 3) that that was maybe the most interesting for me in the whole module: the day that started with a visit to a real estate management company in the heart of Manhattan and ended on a rooftop garden in northern Brooklyn.

Rudin Management Company builds, owns and leases buildings in most prestigious locations on Manhattan. The company’s portfolio consists of both residential as well as commercial properties. What differs Rudin from some other real estate companies is its strong focus on customer service and on buildings that can adapt to changes over time (special infrastructure, advanced technologies). The company is looking for long-term investments to its portfolio and many times sees build and rent -strategy more appealing compared to build and sell option.

For me it was interesting that the management of the company said that they do not necessarily try to maximize the profits and are willing to “leave a dollar on the table”. I admire this philosophy of keeping the tenants happy with reasonable pricing combined with high service standard – the strategy tends to make tenants “sticky” and can improve the profitability in the long run when the turnover rate of tenants is lower than the industry average. The company clearly benefits from the flexibility of family owned company: not being pressured by public shareholders and share price related ratios.

The second visit of the day took us away from the white-collar setting to very different surroundings. Brooklyn Grange is a rooftop farm that manages two vegetable farms in New York. Even though farming in the middle of the city could at first be associated to green thumb hobby rather than to “real” business, this assumption is far from the truth.

The Brooklyn Grange did not have an easy start and was forced to gather financing for its first farm in 2010 from various sources (small loans, crowd sourcing, events, equity) with relatively large number of micro-investments. Since setting up its first farm the company has impressively worked on its business model. The keys to increase its profitability have been:

1. Narrowing the size of the walkways to minimum: space is limited and needs to be utilized as efficiently as possible.

2. Focusing on crops that bring in most profits per square foot: some crops require less space than others and sell for higher price.

3. Time horizon: utilizing time better, starting the season earlier and ending it later if possible.

The importance of the last two points was demonstrated to us with a tangible comparison between broccoli and kale. The calculations showed unquestionably it to be much more profitable to grow the latter, especially if there are numerous seedbeds devoted to it. The example also reminded me of the importance of identifying the cash cows of a company in any industry. For instance if one of the farms low margin plants gets infected, it may not be worthwhile to devote too much time on trying to save it but to rather spend this time on more profitable activities/products. Without this kind of product specific knowledge it is very difficult to allocate recourses efficiently and run a successful business.

As expected the two companies covered in this post differ from each other on many levels. However the sustainable values, long term horizon, emphasis on customer satisfaction and aspiration to grow are common for both business models. Promoting these values does not mean turning down profits. In fact, in these cases the values not only generate high returns today but also ensure them for years to come.

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