Lots going on at the Home Office and beyond! So it has been about ten days since I’ve had a chance to work with the website. Nevertheless, my strong intention for 2021 is to keep adding content and commentary as the year goes along.
One reader has asked why I’m prioritizing “old” published work, instead of keeping on top of the day’s news in the economy and the industry, not to mention the “wider world.” Good question!
I’m certainly not ignoring the news of the day. I have already sent off to Commercial Property Executive my column for the March 2021 issue. That will post here as soon as it is published by CPE. And I’m at work on course preparation for “Ethical Issues in Real Estate,” which I will be teaching at Fordham in April. You can bet that I’ll be making that as up-to-date as I can - and am not averse to “previewing” some of the discussion here.
My two major 2021 projects - the textbook on Real Estate Capital Markets (being co-authored with Merrie Frankel and Tino Korologos) and the monograph (book?) on “Transcending Tribalism” - are also progressing. And the latter can certainly provide the occasion for some Blog posts.
So: please keep nudging me in the direction you (the readers) feel most helpful. I am amenable to suggestions, and have proven willing to change over the years!
And, on the subject of change, let me introduce the additions to the website I’m posting today.
The first is a Summer 1998 essay from Real Estate Issues, entitled “Changes of State.” By now I have published 400 or so pieces in industry and academic journals. I think “Changes of State” ranks in the top 5% in terms of importance. It draws on learning from hard science, from examples in industries beyond real estate, and finally on the experience of the real estate business to make the case that 21st century real estate could proceed in an “altered state”, with associated turbulence, when compared with the prior decades. Judge for yourself how relevant this 22-year-old article is: (on hughfkelly.com/industrypublications/realestateissues/changesofstate)
Like most processes in nature and in economics, a “change of state” does not materialize overnight and out of nowhere. A second post, “Be the Tortoise, not the Hare” from Asian Property (1990) argues for a commitment to long-term strategies in U.S. real estate market investment. Remember that 1990 found the commercial property markets - and indeed the economy itself and the whole financial industry - coping with the collapse of the thrift industry. While many were focused on exiting the market in the midst of its turmoil, uncertainty, and risk of loss, this article maintained “there is a way to invest wisely and minimize risk.” (See also my blog post of 12/29/20, with its reference to “Are You Kidding? Commitment to Real Estate Investment in the 1990s” from SIOR Professional Report.) The essay in Asian Property makes the case for the long view on real estate asset investment, a period that “allows the investor to capture the rise in property replacement cost and the recovery of the excessive risk now assigned to real estate as a capital market asset.” In retrospect, that was very much on-target counsel when it was written. It might very well be relevant again today. (find this on the website at hughfkelly.com/industrypublications/other/BetheTortoisenottheHare)
Also posting this week are the 1989 and 1990 editions of the Landauer Real Estate Market Forecast (under the Consulting page and the Landauer tab). I can propose to you that the “change of state” we are experiencing in the early decades of the 21st century had its roots in trends that were afoot in 1989 and 1990.
For instance, industrial real estate was considered a fairly unexciting part of the investment market in the 1980s. But the Forecasts noted that global trade, increasingly sophisticated technology, and consumer awareness were combining to advance the importance of the warehousing and distribution system. Even before the advent of the Internet and e-commerce, a foundation for a surge in industrial property development and investment was being put in place.
By contrast, retailing had been the darling of the 1980s real estate investment community, and both the shopping center development community and the “smart money” were placing big bets on its future. Even while recognizing those trends, the Forecasts noted that retail oversupply and the overly aggressive pricing of assets constituted palpable risks. The over-pricing, in turn, was related to a spate of excessive - and poorly underwritten - lending of the late 1980s, epitomized by the leveraged buy-out practices of some investment banks. Such retail icons as Bonwit Teller and B. Altman succumbed in consequence of such indebtedness.
This provides a reminder that the much-bruited “retail apocalypse” is not fully to be laid at the feet of Amazon and other e-tailers. The story of real estate practices seduced, ravaged, and abandoned by financial engineers would be retold many times in the 30 years since Bonwit and Altman closed on New York’s Fifth Avenue. As the 1990 Forecast remarked, “Real estate market forecasting concerns choices more than it concerns predictions.” Human decisions, not the determinism of blind forces, are at the heart of economics.
Finally, let’s not forget the sorry tale of Bonwit’s real estate, on the corner of Fifth Avenue and 56th Street (next door to Tiffany’s). Donald Trump bought the property, to become the site of the first Trump Tower. The Bonwit Teller building was notable for several artistic features, including bas reliefs and an ornamental grille over the entrance that were coveted by preservationists and promised to the Metropolitan Museum of Art. They were, however, destroyed in the clearing of the site. “John Baron,” a spokesman for The Trump Organization, declared that art appraisers had determined that these features had insufficient merit and value to be saved, versus the cost of preservation. “John Baron” was later revealed to be Donald Trump himself.
Those who don’t read history are doomed to see it repeat itself.