A satirical commercial real estate proposal in the tradition of Jonathan Swift.
Originally published February 2022.
Fellow citizens of the real estate investing world, may I submit for your consideration that the time has arrived to discard and dispatch the long held, well trusted, underwriting standards that have governed commercial real estate investment for so many decades. Time to untether the market from the arcane standards that place a heavy emphasis on the so-called fundamentals of investing: cost per square, market rent and the like. Time to consider that a new master has come to govern the landscape, who slipped in under the cover of darkness and usurped the ruler upon the throne and stole his thorny crown.
“They shifted from being income generators, seeking to build their ‘nest egg’ for retirement, and became pensioners in need of monthly income”
That new master is the child of a world awash in equity searching for yield and a lending market quite content to supply ample quantities of moderately leveraged debt to achieve those ends. One of the unforeseen consequences of the Covid-19 pandemic (and there are many) was the surge in early retirement in developed Western nations. Rather than soldier on under difficult conditions, many Baby Boomers decided to call it quits and move into their golden years. As they did so, they shifted from being income generators, seeking to build their ‘nest egg’ for retirement, and became pensioners in need of monthly income to sustain the decades ahead. Upon surveying the landscape of depressed yields in the corporate and government bond markets, new retirees and their financial advisors scoured the landscape for yield-based investments. Whether through REIT stocks, broker-dealers or other sources, the most compelling sector for yield quickly became real estate.
