StraightTalk
By Joshua Slaybaugh
Is the Bubble Really Bursting?
Your daily newspaper, local news and national media have
all said it. Economic pundits, financial gurus and governmental officials have expressed concern. Are the glory
days of investing in real estate coming to an end? Have we been
caught up in another short-term boom without realizing it was
nothing more than a bubble ready to pop?
Many believe the anemic residential market and
sub-prime crisis are just the start of a sustained lull.
Others feel there is no better time to consider investing in real estate than now. So, who’s correct?
There’s no doubt the second and third quarters of
2007 will be remembered as the worst in more than
five years for much of real estate. The Dow Jones
REIT index dropped almost 26% between February
and August. The Housing Sector Index (HGX)
dropped 34% over the same time period.
But are these statistics a forecast of what’s to come,
or will 2007 be remembered as nothing more than a
blip on the radar screen? Many studies have concluded the latter. In fact, the future of real estate is so
bright that we might look back on 2007 as the start of
one of the greatest real estate booms in history.
The Brookings Institute recently published a report
stating that in 2030 almost 50% of the buildings in
which Americans live, work and shop will have been
constructed since the year 2000. This mega-expan-sion will give the current generation a vital opportunity to reshape future trends. The study goes on to say, “recent trends
indicate that demand is increasing for more compact, walkable and
high-quality living, entertainment and work environments.”
This means that the concrete-block apartment complexes built in
the ’60s and ’70s, for example, will become a thing of the past, replaced by high-end developments promoting green spaces, and attractive, upscale housing close to suburban and metropolitan areas.
So, what does this mean for the Main Street investor? First, real estate investment opportunities such as REIT’s, LLCs, Securitized
Notes, and TIC interests aren’t going away. In fact, based on current
market conditions, these investments will only grow more attractive
to investors in the years to come as opportunities to participate in
this construction and expansion will abound. Second, real estate investments must become part of every investor’s diversified portfolio.
Time and time again, a diversification approach to investing has
proven to outperform all other strategies.
The real question an investor should be asking is not “should I invest in real estate?” but “where should I invest in real estate?” It boils
down to the old real estate adage, “location, location, location.”
Where are the places in the country that are set for expansion over
the next quarter century? Where will population growth occur?
According to a 2006 U.S. Census Bureau report, over 88% of the
nation’s population growth over the next 25 years will occur in two
regions—the South and West. As empty nesters consider downsizing,
active seniors will escape the burdens of home ownership by moving to multifamily housing in Florida,
Arizona and the Carolinas. Further, as echo boomers
(ages 13-25) leave the nest or graduate from college,
the housing market in the South and West will benefit. Finally, baby-boomers entering their 60s and 70s
will strain Americas healthcare resources. Medical office buildings, hospitals, and assisted living facilities
will need to be built to fulfill this demand.
What can the average investor do to take advantage of these demographic shifts? Well, lucky for us
many of the top real estate investment firms are already acting on these trends. Investment vehicles
such as REITs focusing specifically on apartments
and healthcare facilities are already flooding the market. Sponsors of TIC investments have already refocused their acquisition strategies to acquire buildings
in growing areas of the country, giving property owners wishing to sell their investment and commercial
property the opportunity to diversify their sale proceeds into an attractive portfolio of TIC properties.
All arrows point in the direction of positive growth in the real estate market in the years to come. Of course, the real trick for the average investor will be to determine how to invest in the path of
progress most effectively. My suggestion: Consider demographics
when making investment decisions. Demographic investing is one of
the most effective ways to evaluate your investment choices.
When it comes to demographic investing, investors need to ask
themselves three basic questions: Who? What? Where? Who are the
dominant population groups? What are the essential needs of each
group? Where are these groups living, working, and moving? Find the
answers to these questions and you’ll be well ahead of the game. —RENJ
“Have we been
caught up in a
short-term boom
without realizing
it was nothing
more than a
bubble ready
to pop?”
The views expressed here are those of the author and not of Real Estate Media
or its publications.
Joshua Slaybaugh is president and CEO of Trade Up 1031, a
real estate consulting firm based in West Chester, PA. He can
be reached at info@tradeup1031.com.
