Commercial Real Estate Outlook in 2014:
- Continued Slow but steady economic improvement.
- Rising consumer/business confidence
- stronger & improving residential market
Clouds & Risks
- Interest rates
- political factor especially FED
- Deflation
- General recession
Generally after recessions since 1947, there has been average 3.4% rate of growth per year (1947-2004)
15% of GPD is comprised of consumer functions.
Commercial Real Estate
Tends to be local but also have regional/ national buyers and users
Cap rates revert to pre-2002 levels
Big wave of problem loans has been avoided
Multi-Family is the darling of Real Estate investment community
Commercial Property Price Index
the market had its dip in 2008/2009 but bounced back relatively quickly
According to Dr. Gaines, investing is hoping things go right but really understanding what can go wrong. some common issues in Real Estate investment can be seen below
- Market conditions & opportunities
- Property utilization
- insufficient, conflicting data
- "guesstimates" of current and future conditions
- Due Diligence
- Risk Assessment
Basic Strategies
1. Entry Strategy
- Sources of capital
- price
- ownership form
- financing
- altitude
2. Operating Strategy
3. Exit Strategy
- How to get rid of the property
- Expected gain/loss
4. Tax Strategy
Dr Gaines also talked about Risk Management and risk variables
Known Unknowns: Generally have good idea about level and variability
- interest rate
- lease renewals
- vacancy rates
- individual expenses
Unknown unknowns: "out the blue" but still possible
- New projects
- Industry Changes
- Expenses created from changes in law
- Technology
- General Recession
The key is to evaluate the probability of occurrence and the magnitude
No comments:
Post a Comment