Can’t Figure Out the Commercial Real Estate Market, Take a Look at The Yankees

Can’t Figure Out the Commercial Real Estate Market, Take a Look At The Yankees
BY: Nicholas A. Dunlap, CPM

Major League Baseball. Although it is still America’s National Pastime, our country’s oldest organized, professional sport is a big business. A huge business for that matter, one with hundreds of millions of dollars spent to retool and revamp in the off-season. Ownership invests in players, trades players and assembles the best possible team they can to go out and win ballgames. Recognizing the statistics and output behind each player helps the decision maker determine whether the player is the right for their team.

In a similar and yet unrelated field, we are in the business of investing and managing commercial real estate. Unrelated yes, but similar in that we deal with multimillion dollar assets whose inherent value is dependant on their ability to produce and generate according to our qualifications. With commercial real estate, when an asset ceases to produce acceptable or sufficient returns, we sell or trade the asset.

The New York Yankees are known for consistently fielding one of the greatest teams in baseball. Although they do not always win the World Series let alone the American League Pennant or the American League Eastern conference, they always play hard and represent themselves as the world class brand they are. Earlier this week, the Yankees won the World Series and made their return to the top. This is their first World Title since the year 2000. Although they made it to the World Series in 2001 and 2003, they came up short both years. They were unsuccessful in other playoff match ups and last year, failed to reach the postseason for the first time since 1993.

Like them or not, the Yankees’ history over the past 20 years is a lot like the commercial real estate market at present and provides a great metaphoric outlook for us going forward, especially in Southern California. The late 90’s and early 2000’s offered great buys, 2001-2003 prices began to increase and heat up, 2004 saw a continued increase into 2005 where prices skyrocketed and ultimately began to rise high until 2007, when we saw prices begin to peak and then…drop. Right now, we are on a gradual slope downward that should ultimately lead us to good, sound cash-flow buys.

Just as the Yankees are consistently world champions, despite a few down years and humbling seasons, commercial real estate in Southern California is a sound investment. Think of fundamentals such as rental demand and affordability. Most renters are priced out of the for-sale marketplace and renting is still the more affordable option. Until this changes, commercial real estate is as solid and dependable as the Bronx Bombers in the postseason.