A commercial real estate professional in Charleston was recently quoted as stating that the Charleston Market is ‘On Fire’. My first reaction was “Is being On Fire a good thing or a bad thing”? Having been in commercial banking for 20 years and experiencing firsthand the real estate market collapse in 2008, I tend to be more acutely aware of market cycles. During the Great Recession I had a chance to look at hundreds if not thousands of investment real estate projects that went south during the collapse. In that, I was also able to see consistent trends in why some deals failed and others were able to stay afloat. I watched numerous real estate investors go under while others were able to weather the downturn.
So why is this important with respect to the current market conditions? Because if we don’t learn from the past we are destined to repeat it. Now don’t get me wrong, this is a terrific time to be investing in real estate in Charleston. But I am beginning to see similar behaviors that ultimately caused some investors to fail during the downturn. There were three major behaviors that caused investors to fail: 1. Speculation 2. Debt and 3. Failing to recognize that trends exist (aka Irrational Exuberance). The first two have been kept fairly in check by the banking industry and so are not the subject of my concern. The 3rd behavior is the area that causes me concern. Even as bad as things were during the Great Recession, it appears some people’s memories may be fading. I have written in previous Blog postings that sustainability is critical when investing in real estate. A major factor in sustainability is not only forecasting trends, but to most importantly recognize they exist. Let me explain further. Anyone can forecast market trends, but that doesn’t mean they are going to be correct. It takes a truly disciplined investor to recognize that trends exist and regardless of when downturns or upswings occur, they plan and are prepared for both.
When making investment decisions for my investors, I am constantly focused on looking at a project and planning for the worst and hoping for the best. If an investment can provide a desired return under the worst circumstances, it makes the list. Some might say that my investment strategies are too conservative and I end up missing out on some good deals, and they may be right. But when the market does turn, and it will, my investors will continue to enjoy solid returns because their investments have been stress tested before the downturn.
So if the Charleston market is ‘On Fire’, is that a good thing or a bad thing? The answer totally depends on whether you have recognized that at some point in time the market will decline and when it does are you prepared to weather the storm or not. So how do you know if you are prepared? Simple, presume the market rents, vacancy and cap rates go to the levels we saw during the downturn. If you have an answer to how your investment will survive, then you are prepared. If you have no answer, well…
So during times like these how does an individual investor find opportunities? The best way is to work with an investment advisory group like Urban Core Advisors. At Urban Core Advisors our mission is to provide clients access to a sophisticated real estate investment platform that builds wealth and financial independence. Urban Core Advisor’s clients invest directly alongside our investment team which allows clients to leverage our experience and knowledge. If you are looking to invest in real estate but don’t want to get caught in ‘The Fire’, contact one of Urban Core Advisors professionals today.
Our investment team does ongoing market research and site analysis to determine the best locations geared towards our investment strategy.
We perform site inspections and consult with general contractors and architects to identify property improvement opportunities and cost estimates.
We do extensive property analysis including underwriting property historical cash flow, three tiered income modeling, future cash flow projections and IRR and cash on cash return profitability models.
Our team underwrites the current tenants and reviews all current lease agreements to determine an appropriate credit grade of the property and identify opportunities for improvement.