Like so many businesses, the pandemic’s toll on Flock’s bottom line was predictably sharp: 2020 revenue is projected to drop 17 percent, to $5.8 million from $7 million last year. The profit forecast has gone from $1 million to a worst-case $245,000 loss.
The good news: Wise sees the company surviving, thanks to preparation and a solid cash position.
“I don’t know if it was luck or brilliance, but we were totally prepared,” she said.
Flock has $1 million in government stimulus and loans in the bank. Nearly all of its pre-coronavirus employees are still collecting full pay, though the six-member executive team took a 5 percent pay cut. Wise took a 75 percent hit.
“Anybody whose position couldn’t be performed in this environment and could be repurposed was repurposed,” Wise said.
Though she initially cut the five-member maintenance staff, she has since rehired two of them.
Every staffer has retained health-care benefits and, except for executives, the 5 percent match on the 401(k) retirement plan remains. (Wise is a big believer in long-term savings.)
Business is not bad. In fact, Flock is using the shutdown to expand a nascent home-repair business — think plumbing, electrical, emergency — called BirdWatch to capitalize on people sitting around the house, thinking up “to-do” lists.
Flock is a holding company. Its biggest and most lucrative division is Nest, which manages the 1,000 rentals of single-family homes and condos in the District and supplies 75 percent of Flock’s revenue. Nest charges 90 percent of one month’s rent to find and land a tenant and then collects a monthly management fee of 8 percent of the rent for a condo and 10 percent for a house. Nest revenue is down 40 percent so far because of the pandemic shutdowns that have devastated the U.S. economy, but it is slowly clawing back.
Wise said the average delinquency rate on Flock apartment rentals hovered near 3.75 percent in April and May, compared with 2 percent pre-pandemic.
“Our portfolio is higher-end properties that are typically filled with folks, for the moment at least, who are in safer, white-collar jobs,” Wise said. “We consider ourselves very lucky because I see areas nationally with delinquencies in the 30-percent range.”
Interestingly, Wise said, Nest is performing better than expected because of the effect of the virus on human behavior.
“There have been people moving out of New York, coming to D.C., to escape the crowd and shutdown,” she said. “There have been some breakups, couples who couldn’t live together. Some people are moving back home. Some are combining households to save money. Some are moving from condos into homes.”
Wise said she and her executive team had been discussing the coronavirus threat since early January. After hearing what happened in Wuhan, China, which shut down its city and told everyone to stay home for weeks, they started planning.
“We saw this coming,” Wise said. “The second week of March, we started outlining a shift from in-person workspaces to moving everybody home. We began mulling different scenarios and their impact on our business. How can we manage what we can’t touch?”
Money was going to be a problem, so Wise began thinking of ways to stay afloat.
They went on an austerity plan. Anything that would not affect the company’s creditworthiness was game. Every recurring expense was reviewed: office food, lunches, subscriptions, even the composting service were all cut. Flock delayed paying bills as long as it could. It even held off on the property tax payment.
“I will suffer the penalty for that,” Wise said. “It’s worth it to have the cash.”
Wise, who is wired into Washington’s small business scene, said she heard early on about a new federal program to help businesses.
Laura van de Geijn, Flock’s vice president for growth and Wise’s chief troubleshooter, pulled financial data, tax information and anything else they thought might be required for a federal loan application. They contacted a Crystal City, Va., bank to partner with them on the loan. After five days of preparation, they applied for a $650,000 loan through the Small Business Administration’s Payroll Protection Plan.
Wise checked her bank account on April 21 and saw the $650,000 deposit.
“They freakin’ delivered,” she said. “It was difficult. Rules were changing, and criteria and documentation were changing by the hour. But the anxiety relief from the PPP funds is immeasurable. We truly have never had so much cash in our account.”
Flock also received a $500,000 loan from the SBA disaster relief fund. At 30 years and 3.75 percent, the loan will cost a manageable $2,700 a month, with the first payment not due for months.
“The repayment schedule is so favorable, we went for it,” Wise said. “Maybe we turn around and give it back, but for now it’s allowing me to sleep at night.”
After reading headlines about personal protective equipment running low and some companies giving back the money, Wise said she and her team are being extra careful.
“We are being extremely cautious about the way we manage the documentation of how the money is spent,” she said. “We can use it, and we are using it. We have taken money out of a bank credit line as well to help meet payroll.”
Wise had to improvise so other parts of the company that do fix-ups and routine maintenance for current and incoming tenants could keep the revenue flowing.
Ninety-five percent of the daily maintenance work is being done virtually, by either instructing occupants on how to unclog a sink or change a fuse on the phone or using a virtual maintenance service that her tech team cooked up.
“We walk folks through their issues via Zoom/FaceTime/Google Hangouts and teach them how to change air filters, reset a garbage disposal, clear a drain, et cetera,” she said.
I asked Wise if she foresees any permanent changes in the way she manages her business once the world gets back to normal.
“We will absolutely continue with a modified telework model,” Wise said. “We know it works, but we know it can’t replace in-person collaboration or the work we need to do with clients face-to-face. That said, for those wanting to reduce commutes, have more flexibility for family and more — we can certainly see a strong future for a hybrid workplace that works.”
She is betting the birds will not return to its two offices, Flock East and Flock West, until January 2021.
“That’s when things will return to normal,” Wise said. “And I would put ‘normal’ in quotes.”