Commercial Property Blog
All posts tagged: credit crunch
Why should young people stick with the property industry?
Three weeks ago Amsterdam-based INREV (European Association for Investors in Non-listed Real Estate Vehicles) organized a two-day Young Professionals Seminar in Barcelona.
For me, some of the many takeaways from the event were the following:
1. The dark times are not as dark as they seem...but only for those with a low-leverage investment policy (which probably applies to about 1 in 100 investors and investment managers).
2. The real estate industry is more exciting than ever...the excitement stemming mainly from the nerve-wrecking uncertainty surrounding the return on investment from about any real estate related activity you can think of.
3. Gaudí’s Sagrada Familia in Barcelona, Spain is finally scheduled to be completed in 2026, 100 years after the architect’s death and 144 years after the start of construction.
4. Successful managers are by definition incompetent as shown by Prof. Freek Vermeulen of the London Business School using simple probability theory and statistics.
INREV’s Young Professionals Seminar was organized against the backdrop of today’s difficult commercial real estate environment: This year for the first time two real estate companies (one retail REIT and one mortgage REIT) made it onto the Top 20 list of the largest bankruptcies of all time.
Real estate companies now face the challenge of retaining their best young professionals: Ambitious youngsters might simply choose to abandon real estate for a potentially sexier asset class or industry.
Assuming that what motivates us most is the satisfaction of professional accomplishment and money, the real estate industry seems like the place to be:
Firstly, it is a lot more satisfying to contribute to a company’s success in dark economic times than in periods of general prosperity and growth.
Equally importantly, there are many more opportunities both to learn and to make a positive impact when steering through times of crisis.
Secondly, historically, perhaps more great fortunes have been made and lost in this asset class than any other” (Arthur Segel).
After all, real estate is the source of wealth most frequently cited for the world’s billionaires.
Finally, it is perhaps also worth to have a look at some of the distinguishing industry traits that attracted many of us to commercial real estate to begin with:
• Complexity: Because of the delicate balance and interdependence of real and financial demand and supply that form the real estate market, the latter is influenced by macro-economic, demographic as well capital market forces directly, simultaneously and constantly.
• Diversity: Whether you have the heart of a developer, financier or investor, you get to specialize if you wish without losing touch with the remaining pillars of the real estate cycle. Similarly, the simultaneous exposure to financial as well as commercial, deal-driven aspects is quite unique.
• Informational advantage: Since real estate is such a delightfully “inefficient” asset class when it comes to publicly available information, superior local knowledge is actually obtainable and a key driver of performance. With geographical differences in transaction costs, property rights, taxes, etc., two parties may be willing to pay substantially different prices, which can make negotiations quite interesting.
With this in mind, to me real estate does seem like the place to be after all.
What makes you feel like sticking around?
The property 'bust' have we seen it before?
Edward Jones is a YEP committee member and solicitor who specialises in advising the Property industry.
Find out more about the 1st Friday Club
Looking back in history there is an 18 yr cycle of boom and bust, with a less severe "dip" at 9 years.
In June 2009 we are probably 2 yrs/18 months into a 4 year "bust".
I have not been through this before, so do I believe the older guys who say the good times will return?
Or is it different somehow this time around and are we in for decades of gloom and financial hardship in the property world.
But what should we do? We can't just sit at our desks and wait for the years to pass. How do we make the best of the current situation - how do we identify and seize the opportunities that recession will bring.
And how do we position ourselves ready for the upswing. That is if we can see when we have turned the corner, as we are only likely to be able to pinpoint the start of the recovery sometime after it has happened with the benefit of hindsight.
Hard times often brings about innovation, so how do we catch a ride on the next big thing in our fields of work. Or just maybe should we look for something totally new.
In years gone by many young professionals enjoyed increasing salaries and expected to be promoted if we worked hard enough. But choices made are more important now, with some projects, departments and companies struggling or closing while others are thriving.
It seems we have to be smarter in our decisions, as just doing a good job is not enough to ensure success anymore. For many of my friends, as well as balancing their busy work and social lives, the last few months have been a time to look up and evaluate where they are now, and where they want to be.
Quite a few are concentrating on keeping their jobs, some are looking for new jobs, but others are looking where the opportunities lie - within their existing workplaces and beyond.
In the coming weeks Young Entrepreneurs in Property will write a series of blogs addressing the issues that face young professionals in the property and construction world.
If you have any burning issues why not respond to this blog and get the debate started.
Edward Jones is a YEP committee member and solicitor who specialises in advising the Property industry.
He is a consultant at Rawlison Butler LLP www.rawlisonbutler.com and can be contacted at ejones@rawlisonbutler.com or 07876 255 398.
House prices fell for the eighth straight month in June, we discovered today. So what?
According to Nationwide Building Society, UK annual house prices are now 6.3% lower than they were a year ago after prices dropped 0.9% in June – which is hardly catastrophic.
I’m a homeowner and, frankly, I don’t much care. If I did want to move house today, then I guess I would sell my house for 6.3% less than I would have got a year ago and I would buy my new house for 6.3% less. In other words, there would be no net change.
Likewise, if the market was still booming, and I sold my house for loads of money, I’d have to pay an equally preposterous price for my new home.
I’m far more concerned with rising petrol, food and utility prices, which involves cash leaving my bank account at an ever increasing rate. Why are these price increases considered bad, while house price rises are deemed good?
OK, refinancing your house and extracting cash can have short-term, selfish benefits, but, truthfully, most of us would benefit from lower house prices. For the rising generation the first rung of the housing ladder is way out of reach and for the more mature, looking to move up after having kids, the second and third rungs are invariably only reached with a pole vault.
I appreciate the current housing crisis is not great for first-time buyers, because they are struggling to get mortgages. But this really isn’t a bad thing, either. Until the credit crunch started, first-time buyers could get away with putting absolutely no money into the price of the house – 100% loans are frowned upon in the commercial world, as they should be in the housing sector.
Today, buyers can still get mortgages that are 90% of the price of the house, which is still a very high level of gearing.
At any rate, the pain won’t last for too long. Thanks in large part to our slow and complicated planning system, only 185,000 new houses are usually built a year. France, with roughly the same population, builds at least double that number. This year there is likely to be only 100,000 new homes built.
Such a low level of supply – particularly of anything that isn’t a city centre apartment – will ensure the recovery in the housing market, when it comes, will be rapid.
.jpg)
