8/20/09

Group Investing is now Hip!

By Jerry Anderson, CCIM

I am so tired of reading and hearing the bad news in the industry of my passion - commercial real estate, that I’ve stopped talking to nay sayers and am taking proactive aggressive action. We all know values have tanked, but how can we personally take advantage and help our clients through the maze? Lenders are not any fun to deal with these days. Any type of what we used to consider reasonable leverage seems impossible. What precious stash of cash we do have, we are not willing to risk on one particular deal, so forget 50%-60% down and borrowing the balance with unreasonable terms and high closing costs. Success in commercial real estate investment is usually a matter of how fast you can adapt to changes that create opportunity. The only position to occupy in today’s market is that of buyer; a buyer with cash that can perform quickly. The answer lies not in borrowing to buy assets like in the past, but reversing the leverage scenario – yes, put in MORE cash. But diversification and partners is the key.

Group investing has been around a long time. I was a General Partner in many partnerships in the 70’s and 80’s and got away from it when money became so easy to borrow. The heck with borrowing from lenders, organize small groups and put a boatload of money down, if not pay all cash. Don’t put too much in any one deal and raise enough to weather any storm on the horizon. If you are going to capitalize on the market we find ourselves in right now – adapt! More cash, less leverage and keep it simple without depending on the future - buy based on, quality of the asset and location, cash flow and a low % of what it would cost to replace the structure. I’ve preached that quality; quantity and durability of the income stream are the three legs of any commercial real estate investment for years. It is never truer than now.