Is this Real Estate Cycle Really Different?
| Read comments | Add comment / Rate this Article | Article by: Mark Casey |
"This Time Is Different" is the title of a recently-publicshed book by international economists Carmen Reinhart and Kenneth Rogoff, who examine global financial trends over the past eight centuries. What the authors conclude is that current the economic situation we find ourselves in, as opposed to being an anomaly, is part of a pattern repeating itself time and again throughout the previous millennium.
What does this have to do with current state of commercial real estate? The authors observe that financial meltdowns typically follow real-estate bubbles, rising indebtedness, gaping deficits and then usually high (sometimes hyper) inflation. Through better understanding historical bubbles and financial melt-downs, we can better prepare for what lies ahead. In the words of Heraclitus, “the only constant is change.” Real estate booms and busts, as part of larger economic cycles, are repetitive, and predictable.
Crisis = Opportunity. I have been through real estate boom-busts before in my quarter century real estate career,however, this cycle is by far the broadest and most turbulent commercial real estate melt-down I have witnessed. Unlike previous cycles, it is hard to predict with this one when a sustainable recovery will take hold. The current economy is very painful....particularly for those with a mortgage under water or without a job….yet it provides opportunities as well.
Tenants are now able to lower there operating costs through negotiating the most flexible terms and best lease rates (adjusted for inflation) we have seen in two decades. Investors with cash, have extraordinary opportunities to acquire high-quality, well-located properties at deep discounts to prices of just a couple years ago. Companies leasing office, industrial and retail properties, are able to move from being a tenant to an owner with a 90% SBA loan at the lowest interest rates in a half century.
Energy Optimizing. Regardless of whether you are landlord or tenant, this is the time to make your building the most energy efficient it can be. Optimizing your energy use will reduce your carbon footprint while producing bottom line savings. To do a better job advising my clients in optimizing the energy efficiency of their buildings, I am pleased to announce, after I months of preparation, I passed my LEED®Green Associate exam. The time has come for commercial real estate professionals to understand and play a key role in optimizing the energy use of buildings.
In answer to the question, Is this Real Estate Cycle Really Different?, the anwer is ‘No’, but that does make it any less painful, nor with fewer opportunities.
This information is not intended to replace qualified legal and/or tax advisors. Every taxpayer should review their specific transaction with their own legal and/or tax counsel.
