We live in an age when news travels so fast that what used to be a nightly cycle has been reduced in many instances to minutes or even seconds. Nowhere is this more evident than in real estate. Within a single week, while attending a major apartment industry event, I heard three separate reports from differing sources, all debating the state of commercial real estate. Now I’m not much for pundits, anyway, but I am finding that the competition to provide the reading public with information has become so focused on offering future-casts that journalistic standards like accuracy, credibility and honesty seem to fall by the wayside.
It is one thing to ask for an opinion, and to ensure it is stated as such. It is, however, quite another to make pronouncements from faulty data and present irrelevant analysis. With this being the start of the Major League Baseball season and with all due respect to Yogi Berra, one of the most talented greats ever to play the game, I find it amusing how the pundits keep using baseball references to which inning we’re in to explain the current investment climate and cycle. Oh “cycle,” that dreaded word. With the assumption that most do not wish to entertain the reality that the game ended and the cycle closed, we’re seeing lots of double headers, extra innings, and in some locations, rain delays, all designed to assure continued attention to the inexorable fall of the real estate transaction trajectory.
Day-to-day operations constitute the more reliable sense of what is commercial real estate, so let me share with you what goes on, in my view, after some 40 years of experience monitoring markets, closing transactions and managing properties: Underwritten properly and without pressure from capital sources, you make money when the acquisition price represents opportunity for future net operating income growth. Put another way, if the deal doesn’t work the day you signed it, then the bank is going to take your equity and we probably won’t hear from you again. There isn’t any place within this simple but accurate description that we surmise a mythical cycle has anything to do with it, nor in most instances can the supreme gods of baseball save you, even with an elegantly executed slide into home plate, on a 3-2 count, bases loaded and the clean-up batter having the night of his life. As most of you know, there is a difference between speculation and investment, the simple definition and fundamental difference being knowledge and strategy. Because in the end, well intentioned as ever, baseball is still a game.