Entries Tagged 'Investing' ↓

I noticed that a few people were landing on this website based on some variation of the following search: “What questions should I ask when investing in a real estate project?”

Here is the brief answer: It depends on what you mean by project, but this generally implies that there is a start and an end date which are known (or projected… pun intended) in advance. Such short term projects usually involve development of some sort, but the detail of the questions you would ask is significantly different than investing in an asset for the long term. A real estate development project carries significantly more risk than a purchase and hold strategy, so you should also expect a higher return in exchange for the additional possibility of loss incurred.

1. Most importantly; the people (management) involved. What have your past experiences been with them? What type of experience do they have with similar projects? What experience is their team missing and how do they plan to compensate for this lack?
2. What is the investment strategy? One would imagine that the solicitor was attempting to exploit some competitive advantage which they possess. Are there economic circumstances or scenarios which success is dependent upon?
3. More specifically, what is the time frame and what are the investment terms? Hopefully they will have prepared a prospectus; otherwise, I would tread VERY lightly. You will want to see their financial projections, a sensitivity analysis and any key assumptions they’ve made.
4. The last thing I would suggest, is that you speak to everyone you trust and ask for their opinion. Don’t accept what they say at face value, dig deeper until you truly understand why they feel the way they do. Not all opinions were created equally.

There’s much more detail one could go into, but now you know where to start, and knowing is half the battle. Go Joe!

The IBM office park built in Westchester, NY during the 1980s is nearly empty. The team members from one particular IBM work group have never even met before… at least in person. Online, they meet everyday.

This isn’t some idealistic vision of a future work place, it’s modern day reality at one of America’s largest corporations. In the PBS Frontline documentary, Digital Nation, Francoise LeGoues, the VP of Innovation at IBM, estimates the savings from holding online meetings amounted to $1mm last year. The online world, Second Life, serves as a virtual office space for various working groups at IBM where they hold daily “sit downs”, gather to discuss strategy and map out the team’s mission ahead.

Are “Big Office” Companies Inefficient?

Technological advance continues to accelerate at break-neck pace while innovation constantly iterates old technologies, re-purposing them for greater efficiency. We all like real estate for different reasons, but the single constant benefit has always been real estate’s inelastic supply. While it’s (mostly) true that they aren’t making any more, it looks like they might start using less of it. This could have significant implications for commercial real estate owners if tenant’s employees start working from home. Clearly, some industries and types of commercial real estate are not as threatened by this trend. Don’t expect your dentist to be remotely cleaning your teeth any time soon and don’t expect Jeff Bezos to keep all that inventory in his backyard (although he probably could) rather than a warehouse. However, much of America’s service driven economy does not require a physical presence to complete their jobs.

Time Left on the Clock

There are certainly obstacles to keep this from becoming the norm, so for the moment, the clock is still ticking. A valid concern for businesses considering a shift to a virtual work place is, can you effectively manage employees from a distance? There are good arguments on both sides of this issue, but as work places become more decentralized, certain skills (self-discipline) will become more valuable. Should the trend continue to gain momentum, demand for office space will also inevitably shrink at a faster rate. We can also be sure that the pace of such changes will certainly not let up as companies continue to look for ways to cut costs amidst a recession and greater competition from overseas.

It would be interesting to hear about other companies implementing remote office policies; especially the kinds of results they are getting. These days, we’re all on call 24/7 anyway, so really, what’s the difference?

Share your thoughts/questions/predictions/criticisms in the comments below.

NB. If you’re interesting in finding out more, as you might expect, you can find tons of extra info on the Digital Nation section of the PBS.org website. You can also watch the entire documentary.

A worthy anecdote from the front lines of distressed real estate deal making by Joshua Kahr at Kahr Real Estate. He discusses the importance of relationships and deal structure in a successful transaction:

[...] if a deal could be structured in a way in which a bank could receive more today for a defaulted note or an asset than they would otherwise receive by the investor by bringing in bank as a partial owner in the purchasing entity, this might help to better align the goals of the investor and the bank. In addition, the lender will often finance the new vehicle as a way to boost the overall sales price and mitigate taking a loss today. This process can be beneficial to both parties, because it allows the investors to reduce the equity commitment while providing the bank with a higher price today on paper. In addition to providing some percentage of the equity, a deal could be structured in which the investor must achieve a targeted rate of return prior to a bank receiving any part of its equity back.

A happy and healthy new year to you!

Advice to President Obama:

.”..we’re going to unclog the arteries. My banking experts have analyzed each of your balance sheets. You will tell us if we’re right. Those of you who are insolvent, we will nationalize and shut down. We will auction off your viable assets and will hold the toxic ones in a government reconstruction fund and sell them later when the market rebounds. Those of you who are weak will be merged. And those of you who are strong will receive added capital for your balance sheets, after you write down all your remaining toxic waste. I am not going to continue rewarding the losers and dimwits amongst you with handouts.”, Thomas Friedman wrote on Sunday.

With another $350 billion to spend, Barack Obama has a critical decision to make. In this mess of an economy, who is the best allocator of capital (how can we get the most bang for our buck)? There are three broad options:

1. Individuals
2. Government
3. Businesses

As our economy matured over the past several decades, banks (businesses) have been the bearer of this responsibility, but with the failure of so many massive financial institutions, can business be trusted allocate capital efficiently?

Yes, with a caveat. While capitalism has proven government is too susceptible to partisan & special interests, many individuals and businesses have also proven to be too susceptible to human nature, primarily greed. There are however, those that have proven different.

As Friedman points out, we must reward the businesses who have proven responsible and effective, not the reckless institutions managed by the weak leaders that brought this upon us.

Most investors are rational; like most politicians are honest. So, if you fancy yourself one of the rational crowd, shouldn’t you be raking in the returns right now.

Too Smart By Half

“The problem with being smart, is waiting for the rest of the world to catch up with you.” – Jeff Macke (Fast Money on CNBC)

Should we accept this statement as true, we can infer that, to successfully time an investment, we must ask ourselves, “What event(s) will affect market psychology or, in other words, what will cause the tipping point?”


We can also state that the general liquidity of the asset in question should affect our decision.

Repressing Market Sentiment

Our answer to this answer should inform our investment decisions and strategy relative to the event(s).

So, what indicators should we ‘rational’ investors monitor? We’ve all heard of the “Magazine Cover Effect” and the “CNBC Effect“, but what are some other events indicating market psychology has gone askew? Market technicians should have a ball with this question.