Real Estate

Is there truly a philosophy of real estate, or is real estate innately philosophical, e.g., 'I think, therefore I develop, own, lease or invest'? Is it possible to have a new philosophy of real estate when an old one didn't exist?

The short answer is "Yes" for two reasons.

First, any corporation that invests, owns or uses real estate already has a philosophy of real estate. It may be unspoken or discussed in a business plan filed away on a shelf or stored on a server, but it exists. For some corporations, real estate is simply an expense, a cost of doing business, e.g., the firm needs real estate to provide services and goods to customers and/or consumers. For others, real estate is an investment or asset; they manage it with expectations to receive a return on and of their investment.

Second, current global economic, financial and business trends support the need for a new philosophy of real estate. Today's business and real estate environment is more than just dynamic and fast paced; it also includes conflicting signals from capital markets and real estate markets. There are mixed implications embedded in economic data releases, equity indices, and real estate market information.

A real estate strategy is not the same as a philosophy of real estate. A firm's philosophy of real estate includes the mindset, beliefs, and biases inherent in the use of real estate. It is the firm's philosophy of real estate that drives real estate strategies and responds to signals in the market! Market signals such as movements in vacancy and rental rates, new developments, capital flows and investor preferences are dynamic and change over time. Real estate strategies driven solely by market signals, without review or evaluation through the filter of underlying beliefs or philosophies of real estate, are incomplete, risky and shortsighted.

The first step in developing a new philosophy of real estate is to ask the hard questions. The philosophy of any subject starts with why questions. The philosophy of real estate starts with a simple question: "Why real estate?"

Actually, the question centers more on "Why do we own it, lease it, invest in it, lend on it, securitize it, litigate over it and develop it?" Typical answers include diversification, income stability, business expense, capital gains and/or tax benefits. The answers are as wide-ranging as the inherent differences between the entities, firms and individuals who participate in the real estate industry.

As the opening statements by Frank Lloyd Wright and Alfred Einstein emphasize -- knowledge of truths, perceptions and facts is important, but imagination synthesizes the collective body of signals and strategies into a simple story of real estate.