[quote=Jumby]So Allan, let me get this right…this is no such thing as real estate investing? It’s only speculating? That’s what I get from reading you…[/quote]
No. Not what I was saying at all. Like Clearfund, you’re jumping to conclusions.
My point was that there is a significant difference between speculating and investing and that difference is driven by approach.
To say that there is no such thing as real estate investing is nonsensical. However, as regards residential RE (versus CRE), it bears mentioning that residential RE has barely outpaced inflation as an investment over the last 30 years or so.
Any “investment” that relies solely or heavily on cash flow to pencil is speculative and by its very nature. This is as opposed to an investment that is anchored on Balance Sheet driven fundamentals.
Clearfund attempted to use a strawman in his response to me regarding Wall Street’s valuation methodologies, but it is worthwhile to point out that Wall Street’s models were flawed due to an inability to correctly assess, and thusly price, risk. Similarly, any investment that has to rely on cash flow to work is also flawed and largely due to the inherently overly optimistic cash flow models that will “support” the deal.
Lastly, the notion of “conservative underwriting” is also a misnomer. Given that there is no way of accurately predicting occupancy rates and/or rents, there cannot be any degree of “conservatism” attached to the process. As a former accountant and financial officer, I’m always amused whenever someone throws out “conservatism” as a buzzword. Generally speaking, this is for no other reason than to reassure the uninitiated that the “investment” is “safe”. And, generally speaking, nothing is usually further from the truth.
All the signs point to a coming implosion in CRE. Yes, the gubment will do all within its power to forestall this event, but, eventually, it will happen. Note that Clearfund didn’t respond to the San Francisco scenario. I’d imagine because there isn’t a response that would adequately cover those variables. That being the case, the entire notion of a “structured transaction” offering “conservative underwriting” collapses under its own weight.
