Several years ago, April 2010 to be exact, I wrote a column titled ‘Suvivorman’. At the time, we were a couple years into the economic downturn and there was no quick end in sight. That column drew several parallels between a couple popular survivalist type reality TV series and the then-current real estate market. Half a decade later and the real estate market is significantly better. However, these shows didn’t just focus on getting through the bad times but also taking advantage of the good times.
This month, we are going to revisit this genre and focus on applying some of the tips to the current market.
Survivalists always first seek to stabilize their situation and then take inventory and make necessary repairs. Most real estate investors have been able to stabilize their situation over the last couple years. Now it’s time to assess their situation and make improvements. Maybe you have been putting off some large-scale repairs, such as rough spots in a parking lot or that HVAC unit that has been held together with bubble gum and band-aids. Or perhaps it’s time to address a less-than-ideal balance sheet. Whatever the need is, if you have the capital, the time is now.
Save something for lean times.
Water is a critical element for survivalists and whenever it is discovered, they are quick to stash some for the future. For the real estate investor, cash is king so the obvious comparison here is to save some for the future. However, we can also apply this concept to various other aspects. For example, if you are involved in a lease renewal, it may be more prudent to accept a lower rental rate but longer lease term as opposed to maximizing the rental rate with a correspondingly shorter term. Or if you are involved in a re-financing, think about taking less proceeds in exchange for a longer loan term (i.e., balloon payment).
Keep a survival edge.
Survivalists are careful to not get too comfortable – after all, the name of the game is survival. Real estate investors would be well served by this same advice. Just because times are good doesn’t mean that you should forget all of the things that allowed you to get through the downturn. Chief amongst this is an eye toward opportunity. While real estate bargains are much harder to come by, they are still out there. The key is being able to identify them earlier in the process.
Learn from the past.
Survivalists continually make adjustments based on past experiences and never make the same mistake twice. The entire real estate industry learned several painfully difficult lessons several years ago and would certainly be well served to not repeat some fundamental errors. But it is absolutely critical for individual investors to adapt their behavior as well. For example, an investor may have had to stretch their pricing in order to win a deal during the go-go 2000s and then face the consequences when the pendulum swung hard the other way a few years later. Or maybe a landlord had to contribute a higher level of build-out in order to lure a tenant, only to learn the ugly side of bankruptcy protection a few years later.
Keep one eye on the horizon.
Weather is one of the critical and constantly changing elements (no pun intended) for survivalists so they are keenly aware of details such as wind direction, cloud formations and the atmosphere at sunrise and sunset. The real estate industry is also susceptible to quick changes but savvy real estate investors know to watch the tealeaves that affect our industry. There is no single magic bullet but rather a variety of measures and indices that, when collectively considered, can certainly point to the anticipated direction of the real estate industry. These can include real estate fundamentals, such as vacancy rate, net absorption, gross leasing activity, sales volume and new construction volume, as well as broader indicators like the 10-year treasury rate, loan delinquency indexes and economic statistics including the unemployment rate. It’s important to not only recognize the signs associated with a pending downturn, but also to react to these signs in a timely fashion.
Take some time to enjoy yourself.
While the name of the game is survival, the hosts of these shows never fail to take some time to ‘smell the roses’. From making hot tea out of pine needles to catching some rays while taking in a spectacular view from a sunny vista, they realize the importance of taking some time to enjoy life’s gifts. Very few of us in the real estate biz were having fun during the last downturn. And while the environment is certainly much better now, we shouldn’t forget how we got here. Consider throwing a tenant appreciation party for your tenants or use some downtime to invest in yourself by taking a relevant training class.
One of the more ironic things about these particular survival shows is that neither is still around. But real estate investors are in this for the long haul. Approaching the good times with a solid plan can not only help take some of the sting out of the bad times but also ensure that we all continue to survive in the real estate jungle. Click here to download article.
Alec Pacella, CCIM, Managing Partner