Has The Bull Market In Real Estate Begun?
As goes the maxim, one person’s problem is another’s opportunity.
Matt Bear

Bear

Coaches coach, players play and developers, well, we don’t know what to do. Our instincts tell us to march forward, go against the tide and take advantage of the changing markets. How many times have we heard big money is made on the buy side and not the sale side of transactions? Responsible development has been hindered by housing defaults caused by what might be called mortgage fraud as well as the perceived and real effects of the dramatic rise in oil prices.

Many fundamentals forming the bedrock of the development business were being violated and ignored. Large tenants in common groups were overpaying for average assets and land syndicators were purchasing real estate prices with no end use in sight and generally, many real estate investors were either operating on the build it and they will come theory or the greater fool theory which is of course states that if one buys a property, some fool will come along and pay more for no reason.

The lingering question on our minds is: when is the market going to come back?  Most people don’t notice market changes until it’s too late to capitalize on the spread between the bottom and the beginning of the return. This real estate market needs the same brave souls who bought Google stock at $50 a share when it had no revenues but a bright future, or even more topical, buying oil at $70 per barrel. Bull and bear markets are usually terms for a wildly positive stock market (bull) or a negative and declining stock market (bear).

Just as good golf begins with accurate alignment, developers must be focused on the fundamentals of their core business, by delivering projects for the benefit of tenants, consumers, and investors including our banking partners. It is time to intensely hone in on delivering near term results and to go where the business is, not to where it might be.

If the fundamentals are in place, adequate population density, good design, easy access, clear visibility and convenient parking, then forge ahead. The need for new development or re-development will forever exist. The European market places are living proof of this. We are not over built in this country (at least not in growth markets). When consumer confidence returns, so will the tenants who will fill the vacancies everyone is so concerned with.

Real estate cycles are difficult, if not impossible, to define and even harder to determine when they start, when they dip and when the point the recovery begins. A recent discussion with a land syndicator brought up the idea that the down cycle started 41 months ago when a major national homebuilder canceled escrow on a property they just had to purchase six months earlier. The opinion was probably accurate, the cycle did start farther back then what is debated today, but no one noticed or no one wanted to see the signs. If that is true, then maybe the recovery has begun and we have been beaten down enough by the media and other finance gurus not to notice.

John M. Templeton, the founder of the Templeton Mutual Fund family, operated under the following general thesis: “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy and the time of maximum optimism is the best time to sell.”

 This is an elaborate way of saying buy low and sell high. Which is an old joke, but it stays current because of its simple wisdom. While it will take savvy investors, equity funds and developers to find which assets to purchase, now is the time to sow the seeds of the next great real estate fortune is right now. Further, the tenants, mainly retailers, have a great opportunity to secure strategic locations while their competitors are asleep at the wheel. (i.e. Dunkin’ Donuts versus Starbucks). There may be more bad news ahead, but not nearly as much, similar to when there was still good news while in reality the markets were beginning to drop.

The recovery is on, and developers need to be prepared. You could say that if John Templeton were writing this article, he would tell us to buy real estate, sell oil.

Matt Bear is principal with Venture Development Group, a Las Vegas-based developer and owner that has several projects underway in the west.

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