In a few short months, on June 1st, I will celebrate my 42nd anniversary in the industry! In a recent internal meeting, one of my younger colleagues challenged me to stroll down memory lane and discuss prior “recessions” ( think industry hiccups) that have served as learning moments throughout my career. While I wasn’t as sharp as I had hoped with my memory bank of stories, there were six lessons learned (conclusions if you will) that jumped out at me, and I wanted to memorialize them for you all.
One: The real estate business is cyclical. There are three cycles we are at the mercy of: 1) the capital markets, 2) the property markets, and 3) the US and Global economies. I have always felt, if you could map the sine waves, the picture is clear: there is opportunity where the cycles converge, while there is risk where the cycles diverge. What on earth does this mean in layman’s terms? Simple – in good times, real estate falls into weak hands; in bad times, they revert back to strong hands.
Two: Liquidity – access to readily available cash – matters. To users and providers of capital. Really.
Three: The survivors are always the ones who give up their mental memory of the future. Think about it. Is anyone still waiting for interest rates to come down? WAIT. For what? Because…
Four: The winners proactively CREATE transactions and opportunities – no matter the circumstance.. This is how we create real wealth.
Five: Asset and Liabilities should be optimally matched on balance sheets. “Borrowing short and lending long” has always ended poorly for folks.
Six: Leverage is a two-edged sword. Positive leverage is optimal, but the only way negative leverage works is on properties that are appreciating in value.
My mom’s concept of ‘minor surgery’ was always surgery on someone else. I get that folks are feeling the heat from what has happened in the last 12 months – Ukraine, rising interest rates, the speed and volatility of those rising interest rates, the reality of negative leverage, reduced transactional volume across the industry, and not to mention the deposit debacle driving the run on the banks. All these factors have been painful. That all said, I remain bullish on our industry. This too will pass.
As I was reminded of the past repeating itself, I posit we all will be reminded, again not and in our future, of these six lessons learned across the ages will continue.
