First, I am not an economist. And although my information if factual, it is not all-encompassing. Frankly, there are a lot of things that influence change in this great economy of ours that I can’t fit into a nice, pretty box in order to predict our future. But for what it is worth, this is how it looks from where I sit. Things are getting better … and worse.
On the “better” front, we have had three straight months of respectable job growth in the United States, and we have gained back 20 percent of the jobs lost during the recession. Gaining 300,000 to 400,000 jobs per month would be great, but 227,000 jobs last month is not bad.
Personal debt is back to 10-year average levels (good), non financial institutions are deleveraged (good), and financial institutions are two-thirds of the way to deleveraging (getting there). We are not completely healthy, but our condition is definitely improving. We are on our way out; we will not double dip. 2012 will be better than 2011, and in my opinion, by 2014 we will be working in a normal environment again.
For retail investment sales under $20 million, today’s environment offers good buying opportunities—specifically non-core, unanchored strip retail centers.
I began working for CBRE in 1994. At that time, virtually everything was owned by the Resolution Trust Co., and many in real estate were licking their wounds from the very recent, devastating downturn. Brokers had moved to smaller houses, they were just starting to pay off accumulated credit card debt, marriages were ending, and brokers were afraid. The same story held true for shopping center owners. They had lost their properties, their Porsche’s, spouses, and their egos. There was an eerie quiet mixed with paralyzing fear hanging over a group of people who prior to the downturn were the most charismatic, fun, aggressive, and optimistic people you might ever meet.
All in real estate were paralyzed by fear, except for a brave few—those who also happened to have some money left. One of the brave few bought a beautiful office building on the toll road that was 100 percent vacant for $47.00 per square foot. Everyone said he was crazy … until Mary Kay occupied the building, then he was a genius. Another investor brought money over from the Far East and purchased nearly 20 shopping centers for under $30.00 per square foot. He was “off his rocker,” until occupancy levels rose to 90 percent on previously 30 percent occupied assets. The portfolio wasn’t pretty, but when the recovery came he had cash flow like nobody’s business.
And finally, my favorite story is the guy who came to America from Pakistan with nothing, but, more important, nothing to lose—and therefore, not much fear. He learned our language, laws, culture, and all about our shopping centers, and gobbled them up when many were too scared to make a move. He created a nearly $1 billion dollar enterprise from nothing, and will leave a positive footprint on the world through his charitable works and family legacy.
All of these people went against the grain when everyone else was scared. They bought when everyone said they were crazy. They trusted their inner voice and blocked out all the noise of the skeptics. I believe that now is the time to do it again—disclaimer: in non-core retail product.
But here is the “worse” part. The window does not stay open forever. As the economy improves, more investors start feeling comfortable and more willing to make a move. As the masses wake up, they will drive up pricing. The paralyzing fear that keeps competition at bay will lift, and the ability to transact in a vacuum will end. Remember when Warren Buffett bought stock when our stock market appeared to be at the brink of complete collapse? He was transacting in an environment riddled by fear and probably made the best buy of his life.
So, from where I am sitting (yes, the cheap seats, but with a very clear view of the game) my advice is to look hard for properties to buy, and when it feels right, pull the trigger. When you hit a hurdle in the buying process, have the tenacity to work around it and close the deal. I believe you will look back in four years and wish you had bought 10 more just like it.
In 2014, when we have 20 offers per property and bids are going over the ask price, buyers—in many cases, friends—will complain to me. I will then pull up this blog out and lovingly say, ”I told you to buy when everyone else was afraid; now the only advice I can give you is: If you raise your price by $300,000, you might get the property.”
