The Importance of Healthy Relationships in Business

Before I saw the light and became a psychologist, I spent several years developing real estate in Los Angeles. This was during the early to mid-1990s after the market took a dive from the heights of the 1980s. Home owners were suddenly "upside down" in their mortgages. A house that in 1989 had appraised for $500,000 in 1992 was worth $350,000. This made a mortgage of $400,000 more than the adjusted value of the property. As a result, many borrowers handed their keys to the lenders. The lenders ended up with lists of "Real Estate Owned," which they then tried to slash by further lowering prices. The net effect was a cataclysmic depression in value which didn't turn around till the end of the decade.

One of the few areas of the market to stay firm was tax credit based affordable housing. In exchange for restricting rents, developers were allocated credits which they then sold for cash to syndicators, corporations, and individuals. Revenue from these sales, along with a variety of grants, provided the equity for a typical project. The debt often came from conventional lenders happy to finance below market rate housing.

Developing a successful project entailed certain givens. The numbers had to pencil. The demand had to exist. And each member of the team had to be competent. If any one of these pieces wasn't in place, it jeopardized the overall success of the project. You could put up a great building in a firm rental market, but if it cost too much to build, it would go belly up. You could come in on budget in a firm rental market, but if the construction were shoddy, it would go belly up. And you could build a great building and deliver it within budget, but if the market were soft, it would go belly up. Numbers, demand, and competence were all necessary for success.

And yet they were not sufficient for success. Healthy relationships were also essential. This is because you can't deliver a project if the members of the team don't interact effectively. To purchase the land the developer must have healthy relationships with his broker, the title company, his attorney, the appraiser, and frequently with a private group of investors. To construct the building he must have healthy relationships with the architect, the construction lender, the general contractor, and the accountant. If he's building affordable housing, he must have healthy relationships with the neighborhood, the council person, the city development office, the state tax credit agency, and the syndicators, corporations, or tax credit broker/dealers. Finally, to lease it up, he must have healthy relationships with the permanent lender and the management company. Moreover, any of these entities that has more than one person must also have healthy internal relationships. In every aspect of every stage relationships matter. If the relationships aren't healthy, the project will suffer.

Though I saw this firsthand in my experience as a developer, I see it secondhand as an executive coach and psychologist. Again and again the challenge of relationships presents itself. Supervisees try to figure out how to satisfy supervisors. Supervisors try to figure out how to motivate supervisees. Founders try to figure out how to satisfy boards. Boards try to figure out how to motivate founders. CEOs try to figure out how to satisfy VCs. And VCs try to figure out how to motivate CEOs. Every relationship has its own challenge. If one isn't working the whole system suffers.

The difficult question is how to manage these relationships. One must have the sensitivity to read other people, the strength to maintain solid but flexible boundaries, the intelligence to understand the flow of power in hierarchies, and the resilience to withstand the inevitable conflicts. Fortunately, these abilities can be cultivated through insight, and insight can be nurtured through coaching, therapy, and training. But the key is to recognize the importance of relationships to begin with -- that along with good numbers, strong demand, and a team competence, healthy relationships are essential for success.