CPN - September 2008 - (Page 16) What’s Your Next Move? he real estate landscape has changed drastically since the middle of 2007,and economic conditions are unlikely to permit improvement in the near future. The minimally active finance market, corporate cutbacks and other fallout make doing business difficult at best and have affected some companies gravely.Of course,many a real estate executive has found opportunity in such markets, but timing is everything, and the national economy is volatile enough to throw off even the most seasoned economist’s predictions. T Can Previous Cycles Still Provide Insight to Succeed in Tough Times? By Paul Rosta sus remains that the situation stems from dysFortunately, there is more functional capital markets rather than from an than a little truth to the old imbalance of supply and demand. axiom that history repeats In fact, investors now covet real estate as an itself, suggesting it is possible asset class rather than disdain it, as many did to draw on past experience during the downturn of 20 years ago. That to help predict when to take explains why otherwise eager investors are waitadvantage of market shifts. ing patiently to pour untold billions of dollars After all, the industry and the into real estate until they feel assured that they country have been through will be investing in a sounder economy. downturns before. Differences notwithstanding, consensus is Just how much real estate emerging among a diverse array of longtime real players can draw on past estate professionals that the basic rules still experience to help them apply.In fact,now may be a good time to refer to shape effective strategies this some timeless themes that many ignored during time around, though, is a subthe most recent boom:attention to sophisticated ject that engenders debate. market knowledge,understanding of the compa“Real estate goes in cyny’s goals and good old-fashioned horse sense. cles,and no matter how good it is for five and six years running, real estate is a cyclical business,” Mr. Buffett’s Three ‘I’s declared Barry Barovick, a former CEO of Grubb Marcus & Millichap Real Estate Investment & Ellis Co. and a partner in The Schonbraun Services Inc. CEO Harvey Green suggests that McCann Group, the real estate consulting arm of real estate decision makers would do well to FTI Co.“Everybody overestimated the strength of ruminate on investment guru Warren Buffett’s the cycle we were in.” oft-quoted theory that all business cycles divide Yet significant differences can make it tricky companies into three ‘I’s: innovators, imitators to relate today’s economy to that of the late and idiots. 1980s and early 1990s, the last slowdown comInnovators in a real estate cycle, Green said, parable in size and severity.“We’re in a new era,” are those who are looking early for value-add argued Arden Realty Group founder Richard transactions.Next come the imitators,who try to Ziman, whose enterprises include AVP Advisors follow in the innovators’ footsteps. They may L.L.C., which manages private funds for institube on the right track, but the absence of a gentional investors. For instance, the CMBS market uine long-term strategy and was a decade away from its perspective on economic rise to prominence back “Always think about and demographic trends then, and REITs were still in may limit their success, he their relative infancy. In the exit strategy.” cautioned. And tagging far addition, the unprecedent—Harvey Green, Marcus & Millichap behind are those unfortued access to information Real Estate Investment Services Inc. nates who carelessly throw made possible by the Intermoney at assets without net was barely on the radar. really knowing what they And while wide-scale are doing.“They’re the ones who got caught at overbuilding proved the chief culprit of that the end of the music without a chair to sit on,” downturn, today’s fundamentals remain sound Green argued. The moral of the story: “Always by contrast because developers have generally think about the exit strategy.” avoided overdoing it in recent years. More than Furthermore, success requires a willingness a year into the current slowdown, the consen- 16 COMMERCIAL PROPERTY NEWS • September 2008 • www.cpnonline.com http://www.cpnonline.com
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