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In 21st century, real estate will take on a new, more vanilla flavor.

The 21st Century real estate market will be very familiar to us. While owners will still be the people with the property and tenants will still be the people that need to rent the space, the chemistry has and will continue to change. Real estate will possess the same properties, but ownership will be inherently very different.

A New Millennium owner will be a far cry from his 20th Century counterpart. The individual has and will continue to give way to the group. The Harry Helmsleys of the real estate market belong to an another era. They have passed from our scene, as has the age of Rockefeller and Carnegie. Real estate ownership will more and more resemble the faceless world of corporate business.

When prices of properties go from hundreds of thousands of dollars to hundreds of millions, the group will surpass the individual. By nature, group decisions tend to be ordinary and remain within the accepted norms. Bold and new ideas are not the currency used for advancement by the group. The way to corporate promotion is by not losing money. If you can just make another little advance this quarter and produce a dividend, you'll be okay.

Guys afraid of losing their jobs do not transform neighborhoods and cities. Men and women in fear of losing a paycheck never take risks. Corporate ownership rapidly becomes staidest in character, which in turn stifles the creativity of the industry.

Nevertheless, when an industry enters a world where the financial risks are so enormous, caution must be exercised. Real estate was always a highly leveraged asset. An individual seldom owned a piece of property without a mortgage. A lending institution was usually an integral part of the equation. This "silent partner" applied the pressure to make sure the deal was financially sound. The bank, through its lending policies, insured control over capricious whims by the mortgager.

This balance worked fairly well for most of the 20th Century, Every once in a while, banks would loose their perspective and lend too much in an over-heated market. An inflating of property prices would result with rents rising in order to pay the debt service. Eventually, the rental rates would be too high and tenants would be forced to look to other alternatives.

This is a flawed but effective means of keeping the market in balance. Of course, this type of mechanism led to the cyclical nature of real estate - the boom and bust that owners have come to expect. It is not very different than any other industry that was or is speculative in nature. Today's millionaire real estate mogul becomes tomorrow's pauper.

The willingness of the individual to take risks is what gave the field dynamism. Forgotten neighborhoods could arise from long neglect. An idea that an old manufacturing and warehousing district could become first an artist colony and then an expensive retail area is hard for the average person to understand. Vision in real estate comes from the guy who can see a new way to make a buck.

Once the individual becomes secondary to the corporate ownership of property, a change occurs in the way real estate is perceived. The five-year plan to change the nature of a property and bring financial prosperity gives way to the one-year goal of corporate earnings. When so much money is involved, the guy running the show is not some college drop-out with a dream, but an MBA with a computer.

This will tend to segment the market even more than it is now. More and more marginal areas become subject to increasing prices, which in turn leaves fewer and fewer properties for the individual to invest his money, and more importantly, his vision. When this occurs, stagnation inevitably takes place. Just as in the automobile industry, where the distinctions between competitive models have all but been lost in the hands of "big business," so too will the distinctions between different properties disappear. Look at any mall in America and tell me the difference between one in Texas and one in Ohio.

The sameness, the very drabness that is exhibited by any large manufacturer of a product, will become the standard in real estate, A dictatorship by any elite, whether it is that of a supposed proletariat or a corporate bureaucracy, will result when the individual is subsumed into the masses. Communism produced a Soviet style architecture that the 21st Century may emulate in look, if not in quality.

(Thomas F. Campenni is a real estate consultant advising owners, condominiums and co-ops. He welcomes responses in writing at PO Box 724, Old Greenwich, CT 06870 or by calling (203) 637-5621.
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Article Details
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Title Annotation:real estate industry in the next century; R.E. Views
Author:Campenni, Thomas F.
Publication:Real Estate Weekly
Article Type:Column
Geographic Code:1USA
Date:Nov 4, 1998
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