How to survive in 2005.We are in a fragmented market. The most successful commercial real estate professionals are those who have created value by implementing a specific strategy for a specific property type in a specific market. In other words Adv. 1. in other words - otherwise stated; "in other words, we are broke" put differently , one needs to be much more specialized than ever in this increasingly competitive market. An apartment owner can no longer be just an apartment owner if they want to grow their business through acquisition. Today's successful buyers have created very specialized niches. In the apartment market alone, there are condominium converters, live-work developers, student housing owners, senior housing owner/operators who have their own area of expertise and the list goes on and on. The message is become educated on a specific product type or a specific market. Know everything you can about that specific product type. There is so much capital flooding the commercial real estate sector that the only way one can compete and be successful is to be more knowledgeable than the guy you are bidding against. In this frenzied market, it is very easy to overpay o·ver·pay v. o·ver·paid , o·ver·pay·ing, o·ver·pays v.tr. 1. To pay (a party) too much. 2. To pay an amount in excess of (a sum due). v.intr. To pay too much. and lose out once the market corrects. If there is a real business plan and a way of creating value, then one will be able to survive this overvalued Overvalued A stock whose current price is not justified by the earnings outlook or price/earnings (P/E) ratio and thus, expected to drop in price. Overvaluation may result from an emotional buying spurt, which inflates the market price of the stock or from a deterioration in a real estate market we are now in. Many new concepts and business opportunities are being explored in today's market. We all know about the tens of thousands apartments being converted into for sale housing. There is talk of converting old motels into apartment communities. There are discussions about moving senior housing on to college campuses. We are continuing to see old warehouse and industrial buildings in infill locations converted into housing. The list goes on. All these opportunities require a more knowledgeable and patient sponsor. With any development opportunity, there lies tremendous risk. However, at the end of the day, if implemented successfully, these opportunities are not rewarded by the greater fool theory Greater Fool Theory A theory that it is possible to make money by buying securities, whether overvalued or not, and later selling them at a profit because there will always be someone (a bigger fool) who is willing to pay the higher price. . They will be rewarded with a far greater return than someone who pays today's prices hoping that 1% rental growth will turn their 2% Cap rate investment into a 30% return. The reality is this overpriced o·ver·price tr.v. o·ver·priced, o·ver·pric·ing, o·ver·pric·es To put too high a price or value on. overpriced Adjective costing more than it is thought to be worth Adj. real estate market requires one to think outside the box. One needs to find a way to create value in order to find long term success. Be original. Find new demand. Find underserved markets. Create. This is how one will survive and possibly even thrive in this coming year. One is destined des·tine tr.v. des·tined, des·tin·ing, des·tines 1. To determine beforehand; preordain: a foolish scheme destined to fail; a film destined to become a classic. 2. for problems if they are just following the herd. Think of today's real estate market much like a pyramid scheme Pyramid Scheme An illegal investment scam based on a hierarchical setup that relies on new recruits' funding as the source of money, or so-called returns, to be provided to those earlier investors/recruits above them in the pyramid. . It is great if you get in early. It is devastating dev·as·tate tr.v. dev·as·tat·ed, dev·as·tat·ing, dev·as·tates 1. To lay waste; destroy. 2. To overwhelm; confound; stun: was devastated by the rude remark. if you get in late. Questions. Just Ask. STEVEN HELLER, SENIOR VICE PRESIDENT, ARCS EASTERN REGION |
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