However, there is lots of anecdotal evidence that the market has certainly passed the “stabilizing” stage and is in an upward trajectory. Read what my old commercial broker pal, Peter Fischbach, said about office space in his booming St. Petersburg Fl market.
Certainly the brokerage community is all aflutter over the recent action and excited to see buyers in strength for the first time in years. Who can blame them? It has been a long drought and many once-successful CRE happy hour acquaintances have moved on and sworn off the commercial real estate market.
No CRE Crash in Sight
And I don’t see any caution flags signalling that the market is going to crash. In my career and studying the history of real estate booms and busts, I have come to believe that the crashes are brought on by credit abuse. For example, the housing crash starting in 2007 came about because of mortgages being given to wildly unqualified people who used the money to bid up housing prices.
Prior to that bust was the commercial real estate disaster in the ’80s when savings and loans were giving out money to commercial real estate developers in ridiculous quantities at ridiculous terms. These developers went on to overbuild and the excess capacity destroyed the market.
I don’t see any credit abuse. Yet. If you do, please get in touch by email and let’s discuss.
Speculators Are Active
However, the speculative juices are definitely beginning to seethe and bubble. Also known as momentum investing, this kind of buying relies on market appreciation to turn a profit on the investment.
I strongly advise against this. Instead, be a value investor. What’s that? It’s someone who does the math and figures out how to cash flow a commercial property and pay a price for the investment that makes the cash flow an acceptable return.
Chicago Attorney R. Kymn Harp nails it, “Invest with intentional regard to reliably building wealth though a well conceived value investing strategy not a roulette table strategy that, over time, is virtually certain to fail.”
Read his blog, Value Investing vrs. Momentum Investing. Better yet, tattoo it on the back of your check-writing hand.