Simple RE

Commercial Real Estate Investing and Property Management Require Two Different Skill Sets

Crescendo Properties has acquired 16 commercial properties  valued at over $100 million over the last 5 years.  We've also acquired or leased, and arranged for the debt and equity financing for several Splash and Dash Carwash development sites.  We also manage our portfolio properties.  From this experience I've discovered that real estate investment and property management require two completely different skill sets.

If you consider yourself an investor or developer and are able to you grow your portfolio to more than one or two properties you need to do some hard thinking before you plunge into doing your own property management. 

Don't believe me?  Consider this...

Successful investment requires an understanding of market cycles, financing, cash flow forecasting, due diligence, and contract negotiation. 

Successful property management requires an understanding of operations, leases, facility maintenance, marketing, hiring, training, and bookkeeping.

Investment companies tend to be very lean with small staffs full of well educated and intelligent people that don't require a lot of managing.

Property management firms require professional managers because they have larger staffs with more hirearhy.  By professional managers, I mean people who know how to give direction to their direct reports, give adjusting and affirming feedback, coach and develop direct reports, hire, discipline, and fire employees.  They need to know how to train and coach. 

What it really comes down to is this question. Are you willing to do the hard work of developing the second and different skill set within your company?  If not, you are better off hiring a professional third-party management firm.

If you operate self storage properties and want to swap ideas shoot me an email and we'll talk. 

Market Swings Vs. Fundamentals

In my last post I talked about the volatility in the debt markets. 

The thing that really strikes me is that all of the increases in spreads are coming after the problems with the sub-prime loans and after lenders have tightened the underwriting criteria for conduit loans.  It seems like the time for the bigger spreads was before the underwriting got more conservative, not after. 

The spreads widening after is a function of the fear in the market.  It has nothing to do with the underlying fundamentals of the loans or the assets behind them.  Because of the changes in underwriting, the loans have become less risky, not more.

I bet the guys who are moving into the corporate bond and CMBS markets now are going to do great because they are taking advantage of a market swing caused by market forces that are not tied at all to the fundamentals of the investment.

I believe Splash & Dash Carwash is going to benefit from the same thing.  Car washes are the redheaded stepchildren of commercial real estate.  Retail developers are reticent to include them in their developments, and many lenders are reticent to loan on them.  However, in my opinion, that's just the current market perception.  If you look at the fundamentals, these are great deals. 

Because Splash n' Dash and their investors are ignoring the market for the time being and focusing their attention on the fundamentals, I think they are poised to win big in the medium to long term.

You can make money on momentum and arbitrage, but most investors will make money by taking risks based on the fundamentals.