Investors versus Speculators

The Deleveraging of America

Late in the month of May I was invited to attend a one day meeting of commercial real estate professionals. The meeting was held on June 18th in Washington, D.C. with the 40 attendees representing 20 different commercial real estate entities.

The real estate brokerage professionals were geographically balanced from around the country. At the same time, the breadth of the organizations represented was phenomenal.

Attendees included representatives of CB Richard Ellis (the largest commercial real estate brokerage firm in the United States), the International Council of Shopping Centers, the Mortgage Bankers Association, the CMBS Association, all of the commercial franchisees, as well as all of the commercial affiliates of the National Association of REALTORS.

For some reason I was the only land broker in the United States invited to attend this august group. While it was lonely being the only land broker, it was phenomenal hearing the discussion about the status of the national commercial real estate market.

After presentations by various experts who shared their perspective of what has been and is occurring in the commercial real estate marketplace, there was a report by each of the organizations in attendance describing their perspective from the vantage point of their market segment. One of the attendees referred to the situation of the United States commercial real estate economy as "The Deleveraging of America".

That phrase accurately captures what is occurring in the United States across both the general economy and the entire spectrum of the real estate market. You can imagine the discussion that occurred.

As I drove home to the Richmond area, I was struck by what the presentations and conversation did not cover. While everyone understands that a different market exists today versus three years ago, those differences also describe how to prosper in this market.

The period 2002 to 2006 was one that I never expect to see again in my career. It was a Speculators Market driven to a feeding frenzy the equivalent of fresh meat thrown into the Amazon River so a school of piranha fish could devour it.

But fortunes are made by prudent investing, not speculating. Now that the Speculators Market is over, the critical question is "What should a prudent investor do in this Investor Market?"

The difference between Speculators and Investors is the time frame of their commitment. Speculators hope that by making quick decisions and short-term commitments they can prosper. Quick Buck Artist is an appropriate descriptive phrase for a Speculator. While some speculators prosper, most end up broke because chasing the quick buck is usually illusionary.

Investors have a longer time frame for their decisions. Instead of chasing an elusive and usually illusionary "quick buck", the best Investors figure out where the market is headed and investment in assets that will benefit from the change that is coming.

The "Deleveraging of America" is creating a lot of changes in the market and will magnify others. Investing in the right tracts of land to take advantage of those changes should pay the Investor handsomely as long as they understand that not all tracts of land are equivalent.

To understand how that will impact the values of tracts of land in your portfolio, call us. We are happy to do the Market Analysis necessary to help you understand the marketplace in general and how it is influencing the value of your land portfolio.