By Garry Owen
I am a bit befuddled. I see where a local hotel REIT awarded its newly promoted CEO an almost Million Dollar incentive bonus because revenues increased. But Loss Per Share increased as well. Maybe theres a huge one-time write-off that can explain this, but it would seem to me that an incentive bonus would be youre lucky to still have a job with losses increasing while revenues have rebounded so nicely. We should all be so lucky!
An old friend is a dental hygienist, and her offices are very close to the offices of the GSEs. Consequently, she has a number of the executives there in her hygienists chair. When I mentioned to her that I was surprised to see one of the division heads receive an increase in salary of almost $1 million during the past three years of unpleasantness currently subsidized by the US taxpayer, she told me that her GSE patients suffered dental problems from grinding their teeth while sleeping. Now if my salary were increased to over $250K per month, Id sleep like a baby.
I mention these anecdotes because they remind me of my friend Issaks story. Issak spent his early teen years in the Warsaw Ghetto. He survived and emigrated to US. The most you could ever get out of Issak about his youth was that his family always had food on the table. During the ensuing 50 years, Issak quietly amassed a nice portfolio of about 3,000 mostly C Grade inner city apartments and about 1.4M SF in 10 neighborhood strip centers. Mostly Mom and Pop tenants. Bread and butter real estate.
During one of the earlier downturns, Issak decided to get out of retail. Luckily for him, a local operator needed a bulk purchase to increase its holdings before going the REIT route. A deal was struck whereby Issak would join the newly formed REIT as a Board Member and contribute his retail holdings for shares. This arrangement appealed to Issak not only monetarily, but also because he felt he could contribute to management.
Not too long after this transpired, it became apparent to Issak that his Board appointment was just symbolic. His input and suggestions were benignly ignored. He became so appalled at the unwarranted salaries and bonuses the REIT execs awarded themselves, he arranged an off the record meeting with a former regulator. From his conversation he learned that further complaints or whistle blowing would do nothing but harm his holdings. Consequently, Issak opted out, resigned his position, and sold his shares, luckily at the top of the market (a fool hes not!). A happy ending for Issak. He deserved it.
Garry Owen, a Model For Success contributor, is an industry veteran.