What is one thing you believe to be true (in Real Estate) that most do not?

Taking this quotation from Peter Thiel.

This could be in regard to career progression, industry, asset class, market cycle, etc.

Would really like to hear the opinions of the frequent posters in this forum.

 
Best Response

Good question, I'm a huge Peter Thiel fan and just recently watched his lecture from HTSAS (http://startupclass.samaltman.com/courses/lec05/). The real estate industry is incredibly guilty of treating competition as validation - or lots of people fighting to go through a small door.

I've brought this topic up before but I think technology needs to play a much bigger role in operations, analysis, and bench-marking performance. To list a few examples by sector:

Multifamily - expand on demographics. Crawl through LInkedin, Facebook, etc. to tell me who exactly is renting at my properties. What/where are their jobs and what is the best channel to attract more of these renters? Simplified leasing platforms for small incubator tenants (similar to the Single-Family-Rental sites from Blackstone).

Industrial - energy use (demand-response) and storage; potentially onsite energy production; cheap sensors and big data to minimize expenses. Better leasing platforms as well.

Retail - imaging technology to understand demographics at the center; where does demographic A (male, white, age 35-55) travel to versus demographic B (female, hispanic, age 18-25) and how does that impact my operations?

Office - similar to industrial, but I would argue CBD Office is taking advantage of this moreso than the other sectors

Storage - fire all the humans and install automated systems.

Fill the unforgiving minute with 60 seconds of run. - Kipling
 

GeneParmesan I haven't seen Thiel's lecture with Sam Altman so thanks for sharing. Also, great answers to each property type!!!

Multifamily - What is the Blackstone single-family-rental sites that you mentioned? I can't seem to find it. Attracting a strong tenant base would seem like a great way to minimize the risk in a multifamily property or portfolio.

Industrial - Very true that technology will and is playing a huge role in all aspects of Real Estate today. At an old office building of mine, we installed motion-censored lights that turned on only when motion was detected. This saved a ton on utilities.

Retail/Office/Storage - agree 100%

 

This is not a secret and is probably one of the vital lessons learned from the financial crisis, but real estate markets are not segmented as much as people make them seem. I mention this because my real estate fundamentals professor who was a former developer told us about this concept but never tempered it with even a mention of what happened in the recession. Our book did the same. There are certainly macro factors at play that are ignored. For example, people are jumping into the industry to become realtors, house flippers, and 'investment property investors' again. Also you're seeing more and more institutional investors buying single family homes. For example, I know of two relatively new hedge funds/alternative investment managers who are actively pursuing this strategy, one that entered the market in 2012 and another that is raising money. The former is a multi-manager with $800MM + invested in just single family homes.

 
redrocksky:
This is not a secret and is probably one of the vital lessons learned from the financial crisis, but real estate markets are not segmented as much as people make them seem.
By itself, I totally understand this setnence, but I'm not sure how it relates to the rest of your post ...
 

Should have been a bit more clear, but I gave examples of people/sources (professor and book) that have a distorted perspective of correlation between real estate markets. Then I listed two macro factors influencing prices in different markets (increased investment activity of individual and institutional investors). The real estate crash sentence at the end was probably confusing - my bad.

 

Great question. If I were to look at my market, I could definitely point out inconsistencies, but overall? Hmm...

I think that people in the industry already know this if they look at the statistics, but for all that the media makes about millennials moving into inner cities instead of the suburbs, and the rise of live/work/play communities (that I, personally, love) the numbers don't back it up. We aren't in the golden era of suburbs anymore, and there definitely is a general progression toward more urban living, but any article you read makes it sound like people my generation are moving in droves to inner-cities. In reality, it's a much slower progression, and CBD multifamily in my market at least is in major risk of being overbuilt

Commercial Real Estate Developer
 

With regard to career progression, there will continue to be a lack of humans in Human Resources. The world of Indeed .com is a digital pit. As always with real estate, networking, following up, doing what you say, keeping your nose in the mix will pay off if you want that gig. Getting noticed will get harder. You must take risks and circumvent the system. Sure, apply on line. But you're not in the game if that's all you're doing.

Asset classes, throughout the last down cycle yes, hospitality, retail, office and so on lost up to and possibly beyond 25% of peak NOI. They all seemed to perform, or under-perform the same. Multifamily hung in there. There was a very small increase in vacancy here in SoCal when folks vacated their foreclosing homes. They didn't move in to apartments (which created that bump). They moved in with mom and dad again for the first time in generations. Within less than 6mo we felt rents and occupancy stabilize as these folks landed a job...any job.

Even in the midst of the credit crisis, the one thing you could borrower money on was an apartment building.

 

I'm trying to come up with some other ones:

  1. Never get in a bidding war for a property. Real estate isn't ebay and don't follow the dumb money. Hell, try to buy before it hits market if you can.

  2. Similarly, try to get a job "before it hits market." Once it makes it to a listing board it's just a crapshoot because they're going to get 200-500 resumes and won't even look at half of them. Cold emailing your resume and getting in contact with firms who DON'T have listings, while seemingly counter productive, has been far more successful for me. You will always find people who have been saying "we need to hire someone" for months but then never get around to it. Every office is like this. If they've been thinking and saying that, and your resume pops up, you're already on the shortlist.

3.. The best rainmakers at brokerage firms are rarely the best bosses, yet every firm sets up their “deal team” with the big shot leading the way even if he is the least qualified person to be a leader. If you find yourself working for a fuck, get out of there ASAP.

Commercial Real Estate Developer
 
MiserlyGrandpa:

That our underwriting, and that of many others, is a baseless crapshoot.

This ^

So many times over and over again. I feel like a deal will be a homerun and it struggles to lease up. Another deal gives me bad vibes all the way through underwriting and it totally exceeds our projections. I've yet to be part of a deal that just tanks, but we can see all the demand in the world for a product but actually capturing that can be much different than we anticipated.

 

GP maybe but GC? I don't know the first thing about construction costs etc. If I were a GP in an opportunistic/value-add deal, I am outsourcing 100% of all construction costs/build out costs to a project manager/GC that I have recommendations for. I am not GC'ing a damn thing unless its a SFH rehab--and even then I'm probably still outsourcing it.

I see a lot of second tier owners "faking it" and coordinating build outs themselves. This goes poorly 75% of the time.

 

Lots of great developers GC their own projects... PMC, tower inv in philly.. michael stern in ny. Controlling the construction 100% in house is superior imo, allows you to make changes quickly, negotiate better deals withs subs, actually know 100% where every penny goes.. if you want to work around unions- its also easier to control the construction as you can get inexpensive non-union subs to work under the radar-a major GC would either not do this or do it and pocket the difference. Also when evaluating a development deal, you have the infrastructure in place to price out everything fast. I like the business model alot and think we'll see more and more of this

 

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