Joel Ross argues it is time for both sanity and an accurate bench-
mark to return to the investment real estate world. He is afraid
that too many people think that 2007 was normal and the way it
should be, instead of the biggest bubble in memory. I like his
writing. My only quibble is that instead of using 2004 as the
benchmark for normalcy, I would push the date back to 2003
or maybe even 1999. Other than that, enjoy these excerpts:
"...measuring against 2007 which was clearly a number that reflected nothing other than stupid underwriting, gross over leveraging, and totally irrational exuberance brought about by far too much money in the hands of mostly young fund managers who had no idea what real estate ownership and operation is really all about. Securitization and enormous flows of funds into all sorts of investment vehicles, drove a historic rush of capital into what is really a long term asset play, converting it into a trading card. Real estate is not a security or a commodity. It takes intense and intelligent management even for multifamily and office that may be well rented. Value increases through good management, good lease strategy, good maintenance and smart marketing of space, be it office, hotel rooms or apartments. It also means a good economy and some good luck in the evolution of a local market."
"While there will be good returns generated if you can buy a solid distressed note or asset at a good price today, and if you have very good operational skills to rework that asset and the debt to produce a solid return, then you will do well, but that is all based on how good the buy is, which is always what really matters. With too much money chasing too few deals, really good buys are hard to find today."
"Forget what something was worth in the biggest bubble in history. It does not matter, and is irrelevant. What is it worth today based on what can I realistically expect to do with that asset over time, based on the very uncertain world we live in today, and based on proper leverage levels. How can I protect my downside if the world really does go badly. Those are the metrics you need to be looking at."