As published on scs.georgetown.edu
A panel of six prominent real estate professionals recently met at Georgetown University’s School of Continuing Studies (SCS) to discuss how individual investors, developers, and owners make decisions about investments in the community within today’s real estate market.
The focus of the discussion, titled “Investing in Today’s Real Estate Market: How Individual Real Estate Investors Survive in an Institutional World,” was on smaller developers competing with large institutional investors for sites and projects. While small developers gladly take on investors in their projects, they have a hard time competing for sites against funds that will generally pay more and accept lower returns for a variety of reasons, including different risk assessments.
But is it really a matter of survival? And, if so, can the small investor survive in this market, or even thrive?
The short answers, according to the panelists, were “yes” on all counts. Yet what was most interesting at the forum, sponsored by Georgetown’s Master of Professional Studies in Real Estate (RE) program, was the diversity of responses to this challenge. Some panelists said younger investors could get ahead by avoiding the pressures of high-profile cities and moving to smaller, undeserved markets. Others said it’s best to work from a geographical area one knows—even if it’s Washington or New York—and use that knowledge to find deals the big players may have missed.
Discovering New Markets
Matthew Crossley, an alumni of the RE program and Vice President of Newmark Grubb Knight Frank, one of the nation’s largest commercial real estate service firms, said that overlooked markets in smaller cities are a good place for individual investors to put together deals.
“Sometimes, you can go into a market and see it with new eyes—and that’s what I would encourage,” Crossley said.
Panelist Gene Parker, Jr., President of Continental Realty Corporation, which develops, owns, manages, and leases commercial and residential properties in Maryland and Southwest Florida, agreed, but added a caveat: “We don’t want to go into a market and do something we’ve never done before,” he said.
Other panelists say profits can be made in Washington—if developers are willing to do their homework and be patient.
With “so much money chasing deals,” the competition in places like Washington, D.C., can be steep, said Jill Homan, Principal of Javelin 19 Investments, which invests in real estate and real estate-related assets in the Mid-Atlantic region. “You can find yourself being very smart and not doing a lot of deals.”
Thriving in a Hot Market
The D.C. market is hot right now, land prices continue to rise, and big institutional investors are increasing their market exposure. These funds have the capital to invest in expensive, high-profile projects that promise their clients steady, if not necessarily spectacular, returns.
These large investors are also getting into the development business themselves, buying up properties at the outset rather than simply waiting for smaller investors to turn them into revenue-generating projects, said Glenn Williamson, Interim Faculty Director for Georgetown’s Real Estate program.
Competition from the big players is one concern. So is the possibility that future interest-rate rises—or a new recession—could erase profits from even the most thoughtfully conceived plan. (Though Parker noted that “D.C. comes back quickly” after economic downturns.)
“In this city, you’re going to buy it and then [hope that] all the market forces work perfectly,” said Michael Darby, Principal of Monument Realty. “It’s not easy.”
Not easy, perhaps, but doable. Looking into the mostly-young audience of Real Estate students and others interested in the profession, Darby said Millennials have one advantage in the real estate business: they know better than most how the city’s demographics, work patterns, and lifestyles are changing and what these changes could mean for the built environment of the future.
“There’s enough room for people in this room to do deals in this city,” Darby said.