Inefficient Real Estate Companies Compound Market Woes

By Cunniff, John | THE JOURNAL RECORD, June 25, 1991 | Go to article overview

Inefficient Real Estate Companies Compound Market Woes


Cunniff, John, THE JOURNAL RECORD


Estimates of overbuilding in commercial real estate markets range from one year to nearly 10 years, which is a way of saying that in real estate the inventories are unlike those in any other business.

In the automobile industry, for instance, a three-month supply might be considered a tough obstacle to overcome, even with rebates, discounts and below-market financing. Still, the time frame is in months, not years.

But in commercial real estate, the level of inventories and the problem of overleveraging aren't the biggest obstacles to recovery, according to a man who bought and sold hundreds of millions of dollars of buildings.

As big a problem as inventories and overleveraging, said Allen Cymrot, is the poor caliber of some companies trying to market these structures. He asks if they won't compound rather than solve real estate's problems.

"If you solve the problems affecting real estate and still have inefficient real estate companies, it's only a matter of time until the real estate becomes a problem again," said Cymrot, now a real estate strategist.

Early in his career, Cymrot presided over one of the world's largest real estate companies and was chairman of the National Multi-Housing Council, an owners' organization. Now he advises companies on reducing those inventories.

He isn't completely pleased with what he sees, which is a lot of companies that developed their businesses during one of the industry's great bull markets and who haven't the slightest notion of marketing in a weak economy.

"Historically, bull markets have been very poor training grounds for development of sound business principles," said Cymrot. He observes that there is now a proliferation of companies without the needed skills.

Cymrot says he heard recently from an executive of a major residential developer who said that for the first time in his company's history they had to reduce the price of their product.

"The logical conclusion to that statement is that the company had built its entire operation on a continuing bull market," said Cymrot, adding, "His is not an exclusive experience; that methodology was pervasive for years."

Real estate companies that were founded and grew during this period, he said, practiced techniques that not only are of little value now but are outright impediments to their survival or growth. …

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