Contrarian Real Estate Thoughts

“It is, in fact, nothing short of a miracle that the modern methods of instruction have not entirely strangled the holy curiosity of inquiry.” — Albert Einstein

Neither Warren Buffet or Sam Zell have a perfect record.  They have gone against the grain plenty of times and have come up winners big time. They win far more then they lose…that is a fact, that is how they earned their reputations.

If you go out today and purchase just about any quality real estate..( there are some exceptions) for the most part you will be acquiring  a property at a value that will  likely make you money down the road, and by doing that in today’s  doom and gloom  economic mood….you are a contrarian..and that I maintain will pay off big time.

Mass psychology is not always right or always wrong…but it should be monitored carefully.

Once the masses jump on a trend momentum players come in; they don’t care about  mass psychology or anything else. They just chase the real estate markets up when they are going up and then chase them downwards when they are correcting. For the most part they are like dogs trying to catch their own tails in that they lose far more then they win.

Its worth reading what Sam Zell just said about Real Estate and yes I know what happened to the Tribune Company…but this is Real Estate his history of  success speaks loudly.

Reports of the demise of real estate have been greatly exaggerated.”

In his forecast, Zell predicted:

– Investors will make deals with commercial real estate owners, using investment capital to pay down an underwater mortgage in return for a favorable equity position in the project.  “If there are opportunities in distressed real estate, it’s in buying the debt in return for equity,” he said.

– Occupancy rates will continue to improve, albeit slowly, and at 20-30 percent lower rental rates;

– Multi-family markets will continue to grow and improve through 2011. Zell said on some apartment complexes late last year Equity Residential had more than 40 bidders . “There’s a food fight today to buy assets,” he said;

– New development is a very long way off. “Construction loans are not available today, and they’re very unlikely to be available tomorrow,” he said; and that will lead to less inventory and great profit potential.

There are no shortage of Real Estate Opportunities today.

Are You a Contrarian Real Estate Thinker?

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1 Comment

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One response to “Contrarian Real Estate Thoughts

  1. Rohit Narayanan

    Your comment is interesting and I would like to add some thoughts here.

    To start with, from my experience, there seems to be too many capital sources chasing a few assets. If a note is backed by a non-performing California retail center, you have a 100 investors interested. If it is a partially completed condo in Florida, one where the upside is much higher, there are a handful of investors, at most, interested in looking at it.

    Second, CRE debt product is very hard to find unless from from banks that have acquired other institutions with through an FDIC brokered transactions. Banks that originated the loans themselves either cannot (because of the write downs they would have to take) or don’t need to sell positions because of new rules (new rules that say if a loan mod at even 1:00% IO makes the loan current, there is no principal impairment the bank needs to take).

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