What story? That’s the problem . . . commercial real estate development in the past several decades has lacked a story. A few have gotten it right, but many have not. Most of it is boring, boring, boring and it is all starting to look the same. When the commercial real estate market comes back, those who dared to be different and provide something new will be the clear winners.
Too many of the deals that were done in the past 6 years only made their investment hurdles because of the nice arbitrage that existed in financing the deal at a very high loan-to-value ratio and little recourse to anything except the underlying property. I’m afraid those days are over, which means that new real estate deals are going to have make sense and work standing on their own. If the financing isn’t going to get you over your hurdle, what will? Stronger, better, and deeper connections to the users and their communities is what I would bet on.
Someone recently asked me what I would do if I had access to capital and had to use it to invest in commercial real estate. My answer . . . I would focus on redevelopment and seek out opportunities where none of the competition has a story or something extra of value to offer. I would probably also pay attention to the areas where a city transitions from urban to suburban. There is a lot that can be done in a re-development in that kind of an area. You have the opportunity to attract people from both the urban side and the suburban side. The key is attraction. Forget about doing the same thing that worked so well on the other side of town. Find your courage and set out to do something unique and meaningful. Get out and talk to people, find out what they want in an office building or a retail center. Throw some ideas out; see what kind of reaction you get. Study how people live and aim to give them something of value.
Suburban development has been fraught with big-box, poorly constructed, cookie-cutter, concrete havens that are only really attractive to the black birds because there are now 100 more small trees equally spaced in the parking lot to hang out on. There is probably not going to be a lot of this stuff going up new for a while, but if you are thinking about it, or considering investing in one, please take a trip to Europe. I’m certainly not advocating that we all start to model ourselves after Europe, but at least have a look around and realize that development can have a story, be interesting and attract people simply for its “hang-out” factor. It doesn’t have to be extravagant or expensive to be appealing. It just has to be a cool place where you’d like to hang out.
The reality is that we’ve all gotten over the “Wow” factor of being able to walk into huge stores and see merchandise stacked 30-feet high up to the ceiling. Most of us are now looking for quaint, relaxing, different, more natural and smaller. We want something that is inspiring and has more meaning. We are tired of boring concrete . . . concrete . . . concrete. We are especially tired of those stores where they try to fake you out with a fancy front. Once you look behind the façade, you realize it was just a fake out; they were too cheap to build something with real character. Have the guts to be what you are trying to be.
