RE’s Schizophrenic Desperation

Note: This post was originally written by Donald Teel for residential Broker-Owners. It is syndicated from REALonomics because of its relevance to commercial brokerages and investors. “REALonomics” is a registered trademark ® of The Teel Group, Inc.

The real estate industry is not too unlike an organization living in a state of collective schizophrenia. Figuratively speaking, we are hearing voices that are not real.

Our hallucinations are mostly self-induced; the voices we hear are actually our own mumblings and business babblings disguised as forces we do not control.

I’m now convinced the real estate industry is delusional but not in the classic clinical sense of schizophrenia. Rather, we are deluded by the notion that what we are experiencing is beyond our control.

Since we don’t have an alternative point of reference for our dilapidated and dysfunctional (not to mention unprofitable) business models, we willingly succumb to the voices that keep telling us all will be well and in time the market will return to normalcy (whatever that is).

We have come to actually believe there is a quick cure for our collective malady. We have long ago stopped taking the medications of self-reliance that can eliminate the voices and have instead turned to a political pill that only fuels the illness and delays the inevitable.

The Great Delusional Grip

Franchisors continue to pimp and prescribe, increasing their delusional grip on Broker-Owners, convincing them, mistakenly, that their brands are necessary as a market value proposition and to their survival.

To control the delusions and squelch the voices we pretend our economic survival can be optimized by merely changing the colors of the pills we ingest. We hallucinate about technology solutions that magically produce profitability through Internet lead generation. The voices continue.
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How 2s for Investment Today


Posted by Donald Teel – Arizona Commercial

Everyone, everywhere, is talking about the real estate market. Even people who do not know anything about the real estate market are talking about the real estate market.

Understandably, much of the discussion remains negative. After all, some estimates tells us that the net value of all commercial real estate in the United States has plummeted by as much as 30% since 2006. I would like to address the shiny side of this very ugly coin.

As we come to the end of 2009, how can we successfully invest in commercial real estate?

Many small to intermediate investors have been discovering that buying was the easy side of commercial real estate investment coin…the shiny side! Managing and turning properties in the volatile environment of 2009 has proved to be the tarnished side of our coin.

With respect to the fundamentals of investment, nothing has really changed. Yet, we all know much has changed and continues to change, especially with respect to the acquisition and cost of capital and sustained values. For the purpose of this article, I would like to place a market spin on what I think are the 10 most important principles for small commercial real estate investors to follow in 2010 and beyond.

Property Type. Who could have predicted that the multi-family sector would be where it is today based upon our assumptions ten years ago. We must remind ourselves that our assumptions are merely momentary conclusion based upon ever-evolving data and that the moving data is almost always something over which we have most likely, no control.

Type-casting isn’t just a Hollywood phenomenon, it’s imperative with every real estate transaction these days and in the case of multiple tenant revenues each lease will need to be sifted and ground down in order to determine its viability and value going forward. There are “leases” and there are “Leases” and there are “LEASES.” Nothing works well if the tenants don’t!

Inventory, absorption rates and occupancy rates and CAP rates are imperative to the investment equation. There is no negotiating these issues and they are deal breakers.

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Still, it’s Location. It appears that the newest and perhaps safest strategy for small to medium investors is to get big by investing small all over. Just as mix of property types is essential to a sound investment strategy, so also is the principle of multiple locations based upon regional economic dissimilarities. Atlanta’s medical office values and projected demands will be different than those of Seattle and it would be ridiculous to compare Phoenix multi-family to say Manhattan multi-family.
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