Commercial Real Estate, Predictions, 5 Ways to Make Informed Decisions
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5 Ways to Evaluate Input & Make Informed Decisions

Generally speaking I don’t pay a lot of attention to predictions, but lately I’ve been feeling overwhelmed with the constant flow of predictions everyone seems to be making across a variety of topics including commercial real estate:

  • Will the Fed raising interest rates cause property values to decrease?
  • Will the Trump administration be good for commercial real estate?
  • Is the internet going to tank most retailers?
  • When will the economy go into the next recession?
  • Will 1031 tax deferred exchanges be eliminated?

These are the type of questions that seem to be covered in every real estate publication, podcast, newscast, or conference of late.

As the President of Progressive Real Estate Partners it’s especially important for me to be aware of the current CRE environment and to be planning for the future.  I want to make sure our brokerage team is staying ahead of the curve and that we’re able to give our clients the best and most timely advice.

My feeling is that those that are correct in their predictions are usually just lucky. The world is way too complicated, policy is filled with unintended consequences, and markets are frequently unpredictable.

I don’t value pontificators. However, here are the types of actions I do value and how I assess information so I can make informed decisions and plan accordingly:

Do Your Own Stress Test: Lenders frequently do a “stress test” when underwriting an asset. Effectively, they evaluate how a property would be valued in either a much higher cap rate market or with lower rental rates and/or vacancy. I recommend we all do a stress test for our properties, our businesses, and our personal lives. How will you pay your expenses if you have much higher vacancy or if your income drops by a large amount. If you “fail” your own stress test, make changes so you can pass. Liquidity usually improves the odds of passing the stress test.

Watch for History Repeating: I recently read (I have not verified this information) that the last 7 recessions all occurred about 1 year after long term interest rates exceeded short term interest rates (an inverted yield curve). It sure seems a lot easier to look for the inverting yield curve than to try and pick which people may be correct with their predictions.

Pay Attention to Advisors:  While I don’t like predictions, I love new information. Anything that I can learn to help my team be better informed and increase income is very welcome information. I highly recommend focusing your energy on acquiring new information that you can put into practice. For example, I just listened to tax strategy webinar that offered several good tips.

Be Wary of Self Interest:  Be aware of others interests when making decisions.  So often those that are spewing predictions or other information are unable to tell the truth because they have a vested interest in a certain outcome. If they told the truth, it could hurt their business. Just about everyone has a vested interest in a certain outcome.

Watch Trends: Trends are valuable, so long as you recognize that “past performance is not an indicator of future performance”. Changes from technology, an aging population, and individuals expecting personal customization are all trends.  Thinking of trends in the realm of decision making can frequently add to success. Except if you are Jeff Bezos, then buck all trends.

I wrote this blog because I really want to encourage less predictions and more practical knowledge and actions. I am just hoping that I can move the needle a little away from predictors. Do you “predict” I have succeeded?