Monthly Archives: August 2007

Property Search and Community

 

For those who follow technology and real estate, Search is essential to success. Search is Google’s primary business and is how real estate buyers spend their day. When one carefully defines the relationship of search terms, the better the results. Likewise, when one defines the search parameters for property, the better the deals. Before the Internet, Real Estate Search was conducted by word-of mouth the Multiple Listing Service, and massive cold-calling. It was not easy to be specific. Today, new technologies allow pinpoint accuracy. CRM software, owner and tenant databases, search engines, aerial maps, mobile wireless internet cards and GPS enable one to segment the market into various product types. With massive amounts of capital looking to gain an advantage in different expertise areas, these new search tools have allowed Buyers to look more exactly than ever before.

Simply consider how Google Maps has changed Real Estate. I also like News Feeds because they can automatically track all types of current and specific information. Besides Search there are prototypical ways to conduct business. This next stage is typified by Social Networking sites such as MySpace and Facebook. While not business ready, these sites are based on creating community and relationships. A community, for example, can create an entire ecosystem of capital, lenders, tenants, and property in areas that are otherwise disorganized. Searching for like-minded people and telling others what you do is the basis for Social Networking. While none of these concepts are new to the business world, Search and Community sites will take you further, deeper, and faster. There are other parallels between how deals are sought logically and how their future will be enhanced digitally. Perhaps it can be seen by what is happening today. Search is being used to ferret out the bargains. For instance, any real estate occupied by companies associated to housing such as material suppliers, furniture makers, lenders, residential contractors or Home Depot vendors is being carefully examined for failing tenants. Other Searchers will look at property or companies who are caught in changing capital markets and will need new financing. The community of Buyers is also changing from those who relied on borrowed funds, to those that have cash and Community are excellent tools for Real Estate Professionals, and they enhance our ability in the most important way—finding and making deals.

INFILL LAND

 

 

In the competition for industrial real estate investments, more institutionally backed buyers are dabbling with infill land, but have not yet found the formula for success. Infill sites are considered non-traditional investments because they take more effort to understand and come with substantial risk. Large buyers can not make as big an investment in infill as when they purchase a portfolio of buildings. For this reason, and until institutions learn how to roll up these non-core properties, there is still a great opportunity for smaller entrepreneurial buyers to distinguish themselves as experts in the field.

Once, only builder/developers sought these parcels for immediate speculative development. Now, with the escalation of construction costs, spec development is generally unaffordable. Land buyers are toying with new strategies that include build-to-suit, land-banking, zone changing, and other exotic plays. One industrial REIT uses “pre-sales” to obtain finished building prices with no more than an open escrow and a site plan. Another company controls many key industrial sites throughout downtown that are on the edge of densification and growth. One developer has a lucrative niche by delivering custom buildings at ever higher prices to Asian users. Some simply scour the region for any sites where they can achieve lucrative up-zoning entitlements or develop for users they have in tow, like markets, drugstores and big box merchants. While each one of these strategies can be successful on their own, there is not enough of these opportunities to build an institutional-sized business.

However, infill land is still for professional investors. It takes experience to analyze alternatives. Significantly more money is required because lenders want cash flow to cover the loan. Delays can mean land will not rent for long periods of time. There are often zone changes, public hearings, at-risk deposits and other entitlement challenges to achieve results. Most non-professionals lack the skills and hiring professional talent will eat up profits. The complexity and uncertainty of land limits the competition from “trade” buyers and “mom and pops”. There is also considerable “on-thejob” learning as nuances become clear about use, traffic counts and densities, only after the deal is underway. The surprising thing is that even the most seasoned real estate investors are amazed at the multiple returns that can be achieved or how big the losses can be in the land game.

Land is a versatile and fluid investment from the time it is purchased and even through the life of the holding period. Landowners will see a myriad of options because until improvements are constructed, there are always new possibilities. Land leases, flips, different development scenarios, and unexpected uses are a few of the alternatives that will arise. If land can be successfully held and managed over a long period of time, landowners will receive high rates of annual return with appreciation amounts that greatly exceed the purchases of buildings. It is one area of the business where outsized returns are available for skilled professionals.