How is the commercial real estate market?

Ian Black

Ian Black’s speech to the International Council of Shopping Centers, Southwest Florida Panel Discussion 4/01/10

I am asked the same question two to three times a day, “how is the real estate market?” and I suppose today the same question is being posed to us here on the panel. I think one could best sum up our current predicament by recalling the opening lines from Charles Dicken’s novel, “A Tale of Two Cities”. “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of skepticism, it was the season of light, it was the season of darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us. . .”

It is the best of times if you are a cash rich investor eyeing some of the greatest buying opportunities of the century. And it is the worst of times, if you are a building owner experiencing rental vacancies and reduced rents, and a loan coming due in six months.

It is the age of wisdom if before making acquisitions you diligently perform your evaluation of your perspective purchase. I never cease to be amazed by the number of people who used to buy property on the premise that it would always appreciate. That has never been a rationale in my opinion for supporting an investment.

But it is the age of foolishness if you buy just because you can get a property for 30 cents on the dollar…frenzy surrounding auction of notes thru the internet.

It is the epoch of belief. We all have faith that the market will return; will it be two years, five years, ten years?

But it is also the epoch of skepticism. Ask any seller or landlord reviewing offers to sell or lease their premises. Investors have everything before them – buying opportunities well below replacement costs in prime locations. But those with no cash or financing – “we have nothing before us”.

What can we glean from this unscientific, anecdotal roundup – it is a tale of two markets simultaneously occurring. Investors with cash and investors without cash. No surprise here – the cash-rich are large institutional investors for the most part. But some smaller investors also are looking for ways to stay in the market. The one thing everyone seems to agree on? This sorting-out of the commercial real estate market could take a while.

These remarks should not be characterized as pessimistic, but rather pragmatic. This is the market! It is all of the above. And it is way different that anything that I have experienced, believe it or not, in my 46 years of practicing real estate both here and in the United Kingdom. Even the difficult times that I experienced during the “troubles” in my home country were nothing compared to the complexities of today’s circumstances.

The positive effects of these market conditions are requiring all of us to hone our professional skills, so that we can better navigate these unique and challenging times. There is no doubt that 2009 was an “annus horriblus”, to quote Queen Elizabeth II. However, there seems to be a significant increase in activity that has no doubt been caused by the implosion in values. The outlook for 2010 from my perspective is much brighter than this time last year. I’ve always professed to those who care to listen to me that the way forward for America will be an understanding on all our parts that there is no substitute for American entrepreneurial skill and creativity.

I see it everyday in helping entrepreneurs with ground-breaking technology and ideas find new homes for their burgeoning businesses. I did not see this a year ago. I see banks beginning to make deals; I did not see this a year ago. I see small business owners prepare to make significant cash investments into new opportunities in the belief that this is the time to start a new venture; I did not see this last year. I see new efforts to adaptively re-use functionally obsolete properties; I did not see that last year. I see a paradigm shift in the attitude of government towards business and economic growth.

The ancient Chinese saying: “may you live in interesting times” is reputed to be an english translation of an ancient Chinese proverb and curse. From my perspective, this is not a curse, and in fact, the future may not only be interesting, but exciting and financially rewarding, but maybe not in the way we have been used to in the past.

May you live in interesting times has often be related to the Chinese proverb, “it is better to be a dog in a peaceful time, than a man in a chaotic period.”
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