JackChat March 2023

In a few short months, June 1, I will celebrate my 42nd anniversary in the industry! Today, in an internal meeting, one of my younger colleagues challenged me to stroll down memory lane and discuss prior “recessions” (say, industry hiccups for one reason or another) with the context for each of sharing a learning moment. While I wasn’t as sharp as I had hoped with my memory bank of stories; for certain, six lessons learned (conclusions) jumped out at me that I wanted to memorialize.

Lessons Learned across multiple industry hiccups (so far!):

• The real estate business is cyclical. There are three cycles we are at affect of: 1) the capital markets, 2) the property markets, 3) the US and Global economies. I have always felt, if you could map the sine waives, where the cycles converge is opportunity, where the cycles diverge is risk. What on earth does this mean in layman’s terms? In good times real estate falls into weak hands; in bad times they revert back to strong hands.
• Liquidity – access to readily available cash – matters. To Users and Providers of capital. Really.
• The survivors are always the ones who give up their mental memory of the future. Think about it. Is anyone still waiting for interest rates to come down? WAIT. For what? Because…
• The winners proactively CREATE transactions and opportunities. No matter what. This is how we create real wealth.
• Asset and Liabilities should be optimally matched on balance sheets. “Borrowing short and lending long” has always ended poorly for folks.
• Leverage is a two-edged sword. Positive leverage is optimal; however, the only way negative leverage works is on properties that are appreciating in value.

My mom’s concept of ‘minor surgery’ was always surgery on someone else. I get that folks are feeling the heat from what has happened in the last 12 months – Ukraine, rising interest rates, the speed of the rise in interest rates, the volatility of interest rates, the reality of negative leverage, reduced transactional volume across the industry, the deposit debacle driving the run on the banks – have been painful. That all said, I remain bullish on our industry. This too will pass.

I posit we all will be reminded of these six lessons learned across the ages continues. Again.