All Posts Tagged Tag: ‘Careers in CRE’

  • SXC User Mstrione

    Where is the Accuracy & Accoutability?


    How accurate are commercial real estate websites? Is there any real accountability for the information on the site; or
    is it more for just show and to get a general “idea” of what is happening on the sites?

    In my experience most of the data services out there are extremely inaccurate, however it is not just simply the
    websites and data sources fault alone. Commercial real estate is built on “the power of information”, the more
    information that you can have and keep to yourself the more profitable your business. Therefore, the less accurate
    the commercial websites are with the information the higher the likelihood that a broker or property owner will make
    higher profits with the valuable information they hold to themselves. Taking that into account how likely would
    you, as an owner or broker, be to give accurate information to a website or data source that relied on you for the
    “accurate” information.

    Let’s look at a few of the larger sites that are currently out there the focus on the commercial real estate markets and
    figure out if they are accountable and reliable: CoStar, Loopnet, 42Floors, RIISnet, TREPP, and RealtyTrac to name a

    CoStar –, Loopnet –, and 42Floors –
    CoStar and Loopnet are the 800 pound gorillas in the room, and are both owned by the same company, but are a little
    different in the way they work. CoStar seems to be more geared toward the leasing side of the commercial business,
    while Loopnet is seems to have more of a handle on the investment sales side of the business. The main commonality
    between both CoStar and Loopnet is that they both rely heavily on outside unverifiable information. The market
    reports and general property information is usually quite good, however the leasing rates and general vacancy accuracy
    or tenant mix seems to be off on CoStar. The main issue with the Loopnet information is that is uploaded mostly by
    brokers, and being a former broker myself, I can tell you who knows whether or not any of that information is correct.

    42Floors is a very similar platform as that of CoStar but mainly focuses on subleasing and smaller office leases
    in general. To be very candid with you I have not used it all that much because it is newer, but it would be my
    assumption that it is probably a little more accurate than the CoStar information due to the fact that mainly owners
    of space are uploading the information. Another reason would be because it is usually smaller spaces people probably
    tend to be more accurate and forthright with the information.

    RIISnet –
    RIISnet is one of the most unique websites and trading platforms in the business to date. This is the one platform
    that could be extremely accurate, in my opinion, due to the fact that it is just contact between buyers and sellers.
    The issue here is that, for everyone else other than the buyer and seller, no one will have the transparency of the
    information. So really, is isn’t much help for those trying to understand the ins and outs of the business unless you
    already own properties and are actively trading on this platform.

    TREPP –
    If an investor wants CMBS data this is the place to go for the information. TREPP is owned by Bloomberg is a perfect
    site for Mortgage Brokers to find notes that are coming due and figure out some different leads to go after in day to
    day business. It is my understanding that Asset Managers are required to provide updates on the CMBS loan and where
    it stands in the process, however I also understand that that hate doing this and many times it could be more accurate.
    It is also very difficult to figure out the owners of the assets and many times in my experience as a broker the Asset
    Manager named on the site was the wrong one when called.

    RealtyTrac –
    RealtyTrac prides themselves on being “the nations #1 go-to source for foreclosure information”. When I was working
    at a company that tracked similar information we found 20 foreclosure cases that fit the same categories in RealtyTrac
    that found just 4 cases in the same time frame, location, and size. RealtyTrac seems to be more geared toward
    residential, in my opinion, but many people use this because of the cost. I, however, do not think it is a very accurate

  • A Treatise on Anonymity



    You are being watched.

    I ‘m an old-fashioned guy. In spite of my penchant (cough, obsession, cough) for technology, I usually prefer handshake deals, opening doors for ladies, a tipping my hat to gentlemen. Maybe it’s my southern heritage, but I’m an old soul, as my mother puts it.

    So it may or may not come as a surprise that I have an old fashioned take on public relations.

    Our era of instant information and nearly unlimited connectivity allows us to constantly share every whim, idea, or quote that pops into our minds. We share everything, tell everything, and constantly communicate. And, like just about everything, that maximum connectivity has both costs and benefits.

    Facebook and Twitter have helped topple dictators in Africa.

    They also let you know the very instant that Lance Armstrong admitted to doping or Oscar Pistorius was accused of murder.

    As I try to build my career and a personal brand, I try to take a Franklinian approach to my reputation. I nurture it, check on it, and try to maintain it as best I can. But I’m not perfect. I unintentionally mislead or misrepresent things from time to time and have to back track. I never do those things on purpose; I’m always just explaining my imperfect understanding of the situation.

    For instance, a friend of mine brought a large deal to my attention that would be a strong candidate for my company to acquire. I told him that we pay up to a 1% finder’s fee. Now, that’s true. My company will pay UP TO a 1% finder’s fee on deals, as far as I know. But this deal was huge and a 1% fee would have been much more than $1,000,000. Also, I have never completed an acquisition for my company (I work in another part of the company and I am helping the Acq Team). So, on presenting the deal to our Director of Acquisitions, he made me go back to my friend and make sure he could live with a substantially smaller fee if the transaction were successful. I felt guilty. I had unintentionally misled a friend and lost a bit of credibility.

    Was anything I said untrue? No, but since I’d never done an acquisition before with my company, I could have managed my friend’s expectations better.

    Therein lies my lesson and the point of this treatise.

    There is no way you can anticipate all problems, complications, black swans, shortcomings, recessions, bankruptcies, defaults, or other problems that arise in commercial real estate. No one can. And, unless your last name happens to be Shakespeare, Thoreau, Whitman, Frost, or Dickens, you are not one of the top 5 wordsmiths of all time.

    So here is my advice:

    Shut up.

    Stay out of the paper. Don’t give quotes, predictions, and opinions that are written down or published. Otherwise, you will eventually look like a fool.

    Remember the director of the US Patent Office who, around 1800, declared they should close the office because there was nothing left to invent? Remember the guys who kept talking about “creative financing” in the Business Chronicle 2006 and then filed Ch 11 in 2009?

    I know it boosts our ego to see our name in the paper with a canned quote on the multifamily market and a fancy rendering of our new development, but once it fails and we give it back to the lender we lose credibility . . . like I did with my friend, except on an infinitely larger scale.

    Do you want to look like that? (***Hint . . . No***)

    So don’t worry about self-promotion. Don’t beat you chest. Don’t try to get your name in the ABC. Quoting Roosevelt: “Walk softly and carry a big stick.” Let some other fool make all the noise while you quietly make millions for your investors. Truly great men don’t need to tell the world how great they are.

    Think about it in terms of opportunity cost – every minute you spend self-promoting you are NOT spending on improving yourself and your abilities. If you focus on being spectacularly talented, capable, and efficient, people will know who you are. The people who matter recognize ability not press clippings. As I alluded to above, I have found that the best athletes don’t need to tell everyone how great they are. People know. And people will know your talent if it’s really there.

    Also, the sad truth about us humans is that we aren’t all moral, ethical, and upright. There are certain people who will take advantage of your success. As long as there are ambulances there will be ambulance chasers. And you will find that the more often your successful company’s name is in the paper, the more often you will be served with frivolous and unethical law suits. It’s just the sad truth about us: we are jealous of success and want what others have.

    So go ahead and beat your chest and boost your ego in the paper if you like, but be prepared to pay extraordinary amounts of legal bills to settle frivolous lawsuits out of court.

    Before I leave you, let me clarify one point.

    I’m not saying that PR is worthless or that you should never promote your company or any of its projects. My message is simply an admonition to be extremely careful with what gets put into print (and therefore searchable for all eternity). If you want to have a social media campaign to promote your new apartment project, do it. If you think you need to get your company’s name in the paper, go for it. But please understand that the public eye is an extremely critical one and, unless your name is Jesus of Nazareth, you ain’t perfect. When you screw up, misstep, default, over-leverage, and can’t keep your promises, everyone who can read will know about it. And your reputation will never be what it once was.

    Food for thought.

    – Duke

  • AWNM

    Book Review: A Whole New Mind

    A Whole New Mind by Daniel Pink

     Image Courtesy

    As I have mentioned before, I think the age of the American analyst is ending. Daniel Pink agrees with me. Sort of. His book, A Whole New Mind, argues that creativity and innovation are the American exports of the future and right-brain thinking will be the key to our future. He says that we are leaving the Information Age and entering the Conceptual Age.

    Pink’s book is an intriguing (and well-written) argument that the proliferation of MBAs and “Quants” in recent American business has run its course. The ability to analyze and quantify are skills that can be replicated more cheaply abroad.

    Pink uses the terms Asia, Abundance, and Automation to explain why our left-brained, analytic business model is headed overseas. They are each pretty self-explanatory, but I like the way he argues for abundance.

    My favorite example is the toilet brush. He claims that because of the recent astronomical rise in standards of living across the planet, most people can afford the necessities to survive. Most people even have enough income to have a choice in how to allocate their disposable income.

    Enter the toilet brush. Pink describes his recent trip to Target where he headed to pick up a few things and noticed the bathroom aisle. He saw no fewer that twenty different toilet brushes. Martha Stewart had one. Allen + Roth had one. Some were sleek and sexy. Yep. Sexy toilet brushes. Think about that . . .

    Because the toilet brushes were all less than $10 and all did the EXACT same thing, Pink had to choose the toilet brush that appealed most to him aesthetically. He went with the coolest toilet brush and Allen + Roth got his hard-earned dollars. Or, put another way, the most creative company earned the sale.

    And that, I think, is the entire premise of the book. If we have all we will ever need to survive, then we make our decisions based on taste. And taste is a very right-brained, creative activity and has very little to do with our analytical skills.

    I wouldn’t do it justice to describe all of the examples and analogies that Pink uses to prove his point, but I will say that he is very thorough and convincing. He goes as far as scanning his brain, exploring labyrinths, learning to see the world differently through painting, attending laughing classes, and about a half dozen other exercises that flex the creative muscle of the mind.

    Through Pink’s eyes, you can see how the truly innovative and inspirational companies in the world really put a premium on creativity and R-directed thinking.

    One of the most important keys of the book is what I will leave you with. Pink argues that, with the impending end of the Information Age, the vast majority of American jobs in the future will be held by people who create something. There will be no need for data interpretation or management, and no need for the ability to organize or present information. That will be done for pennies in Pakistan.

    The American job of the future will be creation.

    So, what I recommend you ask yourself is: What am I creating?

    If it can be done cheaper by someone else . . . watch out.


    Whole New Mind in Two Sentences: Analytical skills, data processing, and data management can all be replicated abroad. The future of our country will depend on our ability to create and innovate rather than our ability to analyze and interpret.

    Pros: Interesting analogies, well-reasoned examples of creativity trumping analytics

    Cons: Perhaps overly simplistic or generalizing (but not offensively so)

    Target Audience: Anyone under the age of 80 and over the age of 10

    This book is best for: The reader looking for an interesting introduction into the world of creativity and how the right side of our brains will become our economic engine

    Overall Rating: ♦♦♦♦ (out of 5)

    Here is the Amazon link to buy this book:


    Ratings Guide

    ♦ = Not worth your time

    ♦♦ = May be worth your time if it is specific to your industry or interests

    ♦♦♦ = A decent book and worthy addition to your library depending on your interests

    ♦♦♦♦ = A great book and an excellent addition to your library.

    ♦♦♦♦♦ = One of the all time classics. A must-read for anyone and everyone.


  • Lessons I MUST Learn From the Great Recession

    A new dawn in our city and business

    Let me be the first to say, congratulations!

    You made it. (Or you have almost made it.)

    The Great Recession is slowly grinding to an end. It isn’t happening quickly and it certainly still isn’t easy, but it is ending. And you are still here. You made it through. You stayed in commercial real estate through the greatest downturn anyone alive has ever seen.

    Well done.

    Now what? I think we need to learn from where we went wrong and how we can prevent a recurrence of the carnage (or at least plan for it).

    So here is what I think I should take away from the toughest 5 years in Atlanta CRE history:


    1. Understand the difference between “can” and “should”

    Can you get a loan on an office building in Buckhead? Yep. Can you get an apartment development started? Sure. Can you borrower 90% LTV at interest-only? Uh-huh.

    But . . . should you? We in CRE like to talk about our feasibility studies and thorough demographic reports. We throw around these fancy trends and numbers to show why we “should” build this new condo project or apartment building or spec warehouse or whatever. Somewhere along the way we confused “can” with “should.” We need to take a deep, long look at our assumptions going into our big projects.

    Foreign investors will throw money at you. Bankers may beg you to take their debt. A tenant may even be pushing for you to build some new space for her. But you, Mr. Dealmaker, need to know when to hit the brakes. It can be one of the most difficult decisions for a leader to make. But those who can slow down and avoid growth-for-growth’s-sake will be the legends in the long run. Hopefully the scars from all these foreclosures, bankruptcies, and early retirements are deep enough that we remember where the brakes are on our runaway train.


    2. Prepare for the Worst

    Remember 2006? Rents never decline. Tenants never back out of LOIs. Students always need a place to live. Right?


    Stuff happens. It happened before. It happened big this time. It will happen again.

    Plan for it. Write out a worst case-scenario. Have a rainy day fund. What happens if all that deal flow dries up? What happens if you lose your revolving line of credit? What happens if your bank fails?

    Plan for it. Write it down. And you will find that you always have your umbrella when it starts to rain.


    3. Debt structure matters

    So about all that debt you got in 2005 . . . how did that work out? How many of those 10-year notes are still in good standing? Remember how you rushed through the diligence and didn’t negotiate the terms of the debt? Let’s not do that again.

    If they bank offers you 80% LTV, make it work at 75%. Stay the heck away from interest only. (Take it from a creditor: amortization can be your friend just as much as it is your banker’s). Personal guarantees are serious and should be treated as such. Default interest and provisions are also important (see point 2).

    Basically, just be cautious about the way you structure your debt. Negotiate the terms and be sure to have your attorney and accountant present. The adage in Proverbs about the borrower being slave to the lender is absolutely true. As long as you recognize that you are entering into that type of relationship you will not be as inclined to stretch and squeeze every dime out of your lender.


    4. Who are the truly great men and women?

    Tough times have the way of bringing out the true faces of the people around us. Pay attention to how the people around you behaved when they defaulted on their debt or had major tenants leave.

    What did they do when threatened with bankruptcy? How did they treat their lenders? What did they do to their tenants when the building was in trouble?

    Pay attention to the men and women who handled the strife with patience and grace. Stick close to them and trust them. They are the people you want to spend your career with.

    Anyone can be kind and forgiving when they are making $1,000,000 in income per year. Who showed the same grace while losing $1,000,000 per year?


    5. Enjoy it

    Life is short and so is your career. I can’t tell you how many retirees or industry veterans have told me that their career seemed to go by in the blink of an eye. It will be over before you know it.

    So have fun with it. Enjoy something about your career every day. Even when times are tough and everyone around you is losing money, you should still be able to find some fulfillment from you career. If not, you’re in the wrong place.



    Notice that I didn’t title this article as “Lessons that YOU Should Learn”. These are lessons for me that I thought I would share with you. I have no idea what you learned and how it will affect you. But I do know that you should have learned something.

    What do you think are the most important lessons to take away from the Great Recession?

    – Duke

  • Book Review: Blink by Malcolm Gladwell

    Blink by Malcolm Gladwell

     Blink: The Power of Thinking Without Thinking

    Image courtesy

    What goes through your mind when you form your first impression of something? What types of decisions do you make in the blink of an eye?

    Those are the main two questions Gladwell addresses in Blink. He wants to know how we form our first impressions and what happens inside our minds in the milliseconds that we first recognize something.

    In Blink, Gladwell explores and explains the science of “rapid cognition” or “thin slicing”, as he calls it. He wants to know why we make our knee-jerk reactions to certain circumstances and if there is anything we can do to control or interpret those reactions more effectively.

    Gladwell’s best example, in my opinion, is the Getty Kouros. Some years back, the Getty Museum in CA was presented with an “authentic” Greek sculpture said to date back thousands of years. They spent months analyzing it, testing it, and scrutinizing every inch. After all that analysis, they decided it was genuine and paid $10 million for it.

    But as they started to show it to Greek sculpture experts around the world, they started to realize that they may have made a mistake. These experts would come into the Getty, glance at the Kouros, and feel like something was amiss. The couldn’t exactly verbalize what wasn’t quite right, they just knew from years of experience that something was off with this particular piece.

    Gladwell uses this dilemma for the Getty as an example where an expert’s first impression was more useful that a year of careful studying of the object’s chemistry and provenance.

    As usual, Gladwell is not afraid of controversial topics. He uses a police shooting in Brooklyn, where 4 white policemen shot an unarmed black man, to illustrate the negative power of thin slicing (or as he calls it “temporary autism”). He illustrates how, in the span of about 8 seconds, 4 police officers used misguided first impressions to deem the young man a threat and ended up killing him over the misunderstanding.

    My favorite example involves Atlanta-based Coca Cola. Gladwell delves into the New Coke fiasco of the early ’80s where Coke had been losing blind taste tests to Pepsi for a few years and had seen their dominant market share begin to slip. Concerned with the perceived weakening of the company, Coke (led at the time by Goizueta) created the sweeter New Coke to combat the surging popularity of Pepsi.

    People hated it. There was public outcry to bring back the old Coke and eventually Coke did just that.

    The problem that Coke ran into, as Gladwell opines, is that they were over-weighting first impressions. These taste tests were simple sip tests where the participants would just get a small sip of an unmarked glass of cola. Then they would write which of the two colas they preferred.

    The problem with that is that Pepsi is much sweeter than Coke. So at the beginning of a drink Pepsi would probably win a taste test. However, over the course of an entire can or bottle (how people ACTUALLY drink colas), the sweetness of Pepsi would dissipate and most people would actually prefer Coke.

    Plus Coke had the added benefit of being the original cola, having years of great branding, and fitting in as part of Americana. Coke had this history where its drinkers remembered holding that cold glass bottle on hot summer days as children. Coke had (and still has) nostalgia on its side. You can’t taste nostalgia in a sip test.

    So Gladwell uses the New Coke anecdote as a parable of the dangers of knee-jerk reactions and the need to understand the nature of thin slicing.

    He also cautions on the validity of our first impressions. He argues that you need the skill to recognize your first impression, the vocabulary to name it, and tool set to apply it. For instance, if professional food and drink critics had taken the blind Coke/Pepsi taste test they would have been able to identify the subtle differences in carbonation, vanilla levels, and the hint of oak flavor underlying the first taste of Coke. They wouldn’t have been overly impressed with the sweet punch of Pepsi on the first sip and there may have been no New Coke.

    All in all, I would say that Gladwell, as usual, spins a compelling web of stories, anecdotes, and illustrations to show the strengths and weaknesses of first impressions and the psychology of our rapid cognition. I would have liked for him to delve more deeply into how to control and utilize those first impressions.

    Practically, I would be nice to be aware of when to listen and when to ignore my initial impressions. I suppose that is better left to Kahneman’s System 1 in Thinking Fast and Slow. I finished Blink and wanted to hear more about how to shape my first impressions and use them wisely. Still, Gladwell is always interesting and uses anecdotes well so that I have little doubt as to his theories or opinions.

    Would I recommend you read this book for business? Eh, maybe.

    If you read only one, go with Kahneman. But if you are fascinated by first impressions and their implications, or your career is built on influencing a tenant/client’s first impressions, sure.

    Blink in Two Sentences: Every day we make unconscious decisions and form impressions without ever knowing what or why we thought what we thought. These reactions happen in the blink of an eye and can have both great advantages and tremendous disadvantages depending on the circumstances and environment.

    Pros: Good historical examples, Easy read and interesting anecdotes

    Cons: A bit unsatisfying, Doesn’t fully explore applications

    Target Audience: Anyone interested in the psychology of first impressions and rapid cognition

    This book is best for: The casual reader looking for an introduction to first impressions and how we perceive our world in the blink of an eye

    Overall Rating: ♦♦♦ (out of 5)

    Here is the Amazon link to buy this book:


    Ratings Guide

    ♦ = Not worth your time

    ♦♦ = May be worth your time if it is specific to your industry or interests

    ♦♦♦ = A decent book and worthy addition to your library depending on your interests

    ♦♦♦♦ = A great book and an excellent addition to your library.

    ♦♦♦♦♦ = One of the all time classics. A must-read for anyone and everyone.

  • The Impending Demise of the American Analyst

    Sooner or later our deals are headed to Bangalore.

    Once upon a time, there was a young man who dreamed of a successful career in real estate.

    This bright young chap, diploma in hand, stormed the commercial property landscape at the ripe age of 22. He knew that his ivy league education and exceptional internships and extra-curricular experience would put him on the fast track to success.

    But our young hero faced a problem – paying dues. He was told to pay his dues, sit at a desk, and run numbers.

    “Be and ARGUS-jockey,” they said.

    “You have to know the numbers,” they said.

    “You have to know how to model a deal to have any success,” they said.

    Our hero was placed in front of a computer and told to model deals, stack leases, and build proformas. He didn’t leave his desk. He saw Excel more than he saw his family. He knew more about ARGUS than about how to save money. And every day, a little bit of that youthful exuberance, unbridled energy, and zeal for a career in commercial real estate died, crushed under the shear weight of computational monotony.

    He was forced to do this for 8 years, until he was thirty and everyone agreed he had now “paid his dues” and could actually have some responsibility and become the deal-maker. Unfortunately, most of his ambition and zeal had been beaten out of him one model at a time. He had been obtaining and rearranging data for so long that he forgot about creativity, innovation, pushing-the-envelope, and the joy of waking up every day to new and exciting challenges. The very skills he would need to succeed as a creative deal-maker were the ones he had no time to develop while he spent every day reading and stacking leases.

    He had gotten comfortable (and arrogant) in his ability to assess a deal and now passed the model-making to the hot-shot 22 year old new hire from Princeton, perpetuating the “pay your dues” commercial real estate career path. And another brilliant young mind is beaten into submission one lease abstract at a time . . .


    I know I’m exaggerating a little in the parable above, but, really, how far off am I? How many people enter our industry as deal-makers or with any real responsibility? If it is more than 1% I will be shocked.

    Now to be fair, I think it is TOTALLY reasonable to assert than anyone in our industry should know how to analyze a deal. If you don’t get the interplay of modelling and financing in commercial real estate, you will have a very difficult time finding success in our business. Every deal is based on numerical and economic assumptions and the most effective way to understand those assumptions is with a well-built model that you can manipulate and tweak as the market dictates. So understanding models is crucial, in my opinion.

    But here is where I break from the classic model and our sad story above. I don’t think you have to build models to understand them. And I don’t think Americans will be building models much longer.

    Here’s why –

    I didn’t build my car. I had absolutely nothing to do with my car’s construction. But . . . I know it pretty well and I know how to use it. I have taken the time to get to know it and what it can and can’t do.

    I know that is a bit of a silly example, but it rings true. Just because I didn’t physically input a rent roll into my model, doesn’t mean I don’t understand the occupancy rate, discounts, bad debt, etc. It is very easy for me to understand the output of a model without having done any of the input.

    If you sent me a completed discounted cash flow model tomorrow, I would check out the property type, address, units/sf, profit & loss, rent roll summary, and any projections. I would look at your rent/expense growth assumptions, occupancy/rollover, discount rate, hold period, cap rate, and projected returns and decide which of those I agree with. Maybe I even take 4 minutes on CoStar to see if I agree with your cap rate (if I don’t know the submarket). The point is, after minimal training, it’s not hard to figure out 1) the assumptions that went into the model and therefore 2) if I agree with the model’s output.

    So again I say that the only really tricky part of financial modeling is interpreting the output. The input is just shuffling numbers.

    And that’s the problem.

    For simplicity’s sake, let’s say that a 22-year-old analyst just out of college will be paid $50,000 per year or $25 per hour. Neat! Way to go, sport! Now sit at a desk and shuffle numbers all day, young fella!

    Or . . .

    Since it’s just number shuffling, I could pay someone in Pakistan $6 per hour to do it.

    Seriously. I’m not kidding.

    Anyone who has paid attention knows that off-shoring is spreading like wildfire in every industry in the country. Friedman’s The World is Flat, Pink’s A Whole New Mind, and Ferris’ 4-Hour Work Week all extensively profile the affects of off-shoring and the benefits it brings.  Off-shoring is real and here to stay. $6 per hour is not only a decent salary in developing countries, it will also get me an MBA-educated 30-something who specializes in analysis.

    Yeah, his English may not be great. Yeah, it may take me a while to work out some of the kinks. But, frankly, every analyst needs training and correction and I expect there to be kinks. If I am saving $19 per hour every hour, then I am totally fine with working out some kinks.

    The inherent beauty of the setup is the time difference. I can send 5 deals to my team of analysts on Bangalore at 7PM EST and having them ready and waiting for me in my inbox by 6AM the next morning. They work while I sleep.

    Let me say that another way:

    I am being productive while I sleep.

    Cool, right?

    So, you tell me. Would you rather pay an American financial analyst $25 per hour to stack leases and project cash flows during the day, or would you prefer to pay an offshore analyst $6 per hour to complete the model for you while you sleep?

    Seems pretty obvious to me.

    So, you heard it here from your buddy at the APJ. The days of the American analyst are numbered. In twenty years, we may have no more analyst positions in our industry based in the US. That doesn’t mean we stop needing to understand and interpret financial models. It just means we stop paying 4x as much for creating them.

    – Duke

  • Anchoring and Priming in Commercial Real Estate


    He’s contemplating anchoring and priming

    After reading Thinking Fast & Slow, I was struck by two interesting concepts: anchoring and priming.

    Anchoring is the psychological concept of mentally attaching to an initial value. The most understandable example is retail discounts. Retailers will advertize the price of a good as steeply discounted from the original price in order to distract the buyer from the actual value of the product.

    For example, Bloomingdale’s will sell you a plate for $200, but will advertize it as “Originally $300”. That way, you focus on the fact that you are getting $100 and 33% off the original price rather than trying to determine whether or not the plate is actually worth $200.

    In the example, you as the consumer are anchored to the original “value” of $300 and ignore the intrinsic value of what you are buying.

    Priming is the idea that someone can affect your actions by conditioning your subconscious. Put another way, your conscious self can be motivated by your subconscious self.

    The classic experiment to demonstrate the phenomenon of priming is the word jumble experiment. In the experiment, people would be given 5 jumbled words and asked to make a four word sentence.

    An example would be: Happy, Men, Women, Make, Bingo

    Depending on your opinion, the sentence would be “Men make women happy” or Women make men happy.” The actual sentence is irrelevant. The “outlier” word is important. In this case it is “bingo” and in the experiment, all of the words were associated with old age. So they would give obvious 4-word sentences and then include words like Florida, Retire, Grey, Wrinkle, etc.

    The key part of the experiment was what the subjects would do after the word jumble. They were asked to walk down the hall to another room and those running the experiment would time that walk. They found that the walk down the hall after the word jumble was twice as slow as the walk before the jumble.

    The punchline is that the subjects’ subconscious had been primed to think about elderly people and the body then began behaving like an elderly person (walking much slower than normal).

    Kahneman gives several other examples that ring true and drive home the point, but let’s assume that I have convinced you that priming is a real phenomenon where your subconscious will cause you to do things your conscious mind might not be fully aware of and we can manipulate that subconscious.

    Big friggin’ deal, you say. What does it have to do with commercial real estate in Atlanta?

    Well, curious youngster, both have profound effects on our business and will be worth millions of dollars to you over the course of your career.

    I would argue that anchoring is one of the fundamental aspects of negotiation and pricing and priming might be one of the single most important considerations for developers, architects, and landscape architects.

    For the anchoring argument, let’s assume you are negotiating either the sale of a property or a lease of some of its space. You do your homework, figure out a realistic value range for the property and then need to advertize your price to the market. That initial advertized number is your “anchor” and you must choose it wisely. All ensuing negotiations and price discussions will be based upon a relationship to that number.

    If you advertize Midtown office space at $33 psf, then the tenant will probably want to settle at $26 or $27 psf. It doesn’t matter to them that Midtown office space is only worth $23 psf. They feel like they got a deal. Just like the Bloomingdale’s example above, they see only the discount to the original $33 psf rather than objectively analyzing the value of the space. Everyone wants to feel like they got a deal and if you wisely choose your original price anchor both parties will come out feeling like they had the better end of the deal.

    (*Note* – Of course, there is a limit to this effect. If you try to anchor at $55 psf in the example above, clients will ignore you and pass you off as ridiculous. But, done well, anchoring can serve you very well in your negotiations.)

     For priming, I would argue that developers, architects, interior designers, landscape architects, and any other “space creators” are in the business of first impressions and must understand priming. Bob Lutz of General Motors famously said that they were in the “arts and entertainment business” because he understood the value of consumer impressions. If he could position his cars as “works of art” and mobile entertainment centers, they would transcend the mundane Point-A to-Point-B machine that cars had symbolized for many of us.

    The exact same concept applies to commercial property. If you can convince tenants that this is a safe, relaxing, a beautiful place to conduct business or live (for apartments), I bet they will be interested in leasing your space. If you can convince buyers that this industrial park is well-maintained, clean, and efficient, I would be surprised if they didn’t put an offer on the table to buy the property. You can use the subtle effects of priming to make leasing and selling your buildings much smoother.

    If you can use things like beautiful landscaping, water features, clean hallways, organized parking, and other small features to “prime” your investor/client/tenant to think that this is a great property, then 95% of your job is done. Because in the end, almost all of us are selling the same thing:

    This is a great property and you want to be involved here.

    So, if that is what we are selling, then we should all be using subtle priming methods to convince others that this is first class and well done. We can dig into more of the details of this later, but suffice it to say that everything from the way you dress to the way you shake hands to the way you smile when you talk will affect the subconscious of the buyer or renter.

    So you want to “prime” people to buy what you are selling, no matter what it is. That’s why they tell telemarketers and phone sales professionals to smile when they talk on the phone. It makes them seem happy and we consumers like to buy from happy (friendly) people.


    Hopefully you can see that the subtle effects of anchoring and priming can have profound effects over the course of a career. If you can get an extra 5% pricing on your deals because you anchor well or you can close an extra 4% of deals because you prime buyers well, and then compound that over a 40 year career, look out. You can waive at me from your Maserati.

    I exaggerate a little, but please don’t miss the point. In this highly competitive business, you need to use every small psychological advantage you can over your competition.

    To bring it home, when was the last time you refused a deal you wanted where the salesman warmly smiled at you and offered you an immediate 20% discount off the asking price?

    See my point?

    – Duke

  • Book Review: Startup Nation

    Startup Nation – The Story of Israel’s Economic Miracle by Dan Senor & Saul Singer

    Start-up Nation: The Story of Israel's Economic MiracleImage Courtesy

    I full admit that I’m a startup junkie. I love to hear the rags-to-riches stories of entrepreneurs who had great ideas and then the guts to follow through on making something special. It’s the quintessential American capitalism story and I get my monthly fix in Inc and Entrepreneur magazines.

    So it shouldn’t be a huge surprise that I read a good deal about startups. Entrepreneurship, venture capital, and the art of creating something from nothing are just fascinating, in my opinion. Oddly enough though, I got this book recommendation from David Birnbrey of Shopping Center Group.

    (When I am meeting with industry veterans to pick their brains and look for wisdom I almost always ask for good book recommendations. Startup Nation was Birnbrey’s recommendation.)

    I usually expect books that are country-specific to be overly patriotic or home country propaganda. This wasn’t like that. Startup Nation is basically just an examination of the culture created in Israel that has pushed this tiny nation to be one of the top 5 most innovative cultures on the planet.

    The author asked, “How can such a tiny country with such limited natural and human resources become such a technology and innovation giant?

    A large part of the answer, it turns out, comes from the IDF. The Israeli Defense Force is the national military that protects this small nation from hostile neighbors. Senor found out that the IDF culture is one of improvisation and questioning authority.

    For example, he found that in an air raid all planes and pilots will know the main objectives of the mission and do what is necessary to accomplish those objectives. If one plane is shot down or fails to hit a target, another plane will carry out the bombing run with the remaining explosives it has on board. Seems logical, right?

    Well in the U.S. Military (and apparently most national militaries), all planes are to stick to their objectives and ONLY their objectives. Any deviation from the prescribed flight pattern will lead to reprimand and possibly disciplinary action. Not so in the IDF.

    The IDF has created a system where you are encouraged to go “off-script” if it will lead to accomplishing the major objectives of the mission.

    The IDF also encourages questioning superiors.

    If you disagree with the judgment of a superior officer, question him or challenge her respectfully. The IDF seems to believe that leaders should have accountability to those they lead and apparently it’s not uncommon for privates to go over the heads of captains when they disagree on decisions or actions.

    So the IDF actively promotes a culture where all servicemen and women are asked to consider the broader goals of the military and to actively question authority. Senor argues that this culture leads to a fantastic startup culture once these soldiers enter the private business market. Since all adults in Israel are required to serve in the military, it’s easy to see why this mentality pervades the entire adult population of Isreal.

    While the IDF argument was my favorite theory, Senor provides ample resources and supporting arguments for why Israel has become so innovative. Be sure to check out his argument on why Charles DeGaulle was responsible for the rapid ascension of Israeli weapons technology and why Intel owes much of its chip-selling success to Israel.

    The reason I am including this book in our Commercial Real Estate Bookshelf, is that I think it is crucial to understand innovative culture. If we aspire to be next-generation leaders in the commercial real estate industry, then we had better gain a firm grasp on creating innovative cultures. If we do not innovate, we will be passed.

    So, if you aspire to inspire, then I recommend reading Startup Nation and taking note of how the leaders described in the book use deliberate and intentional practices to create environments conducive to some of the best work on the planet. If you can replicate that type of environment, there is no telling how far you and your company can go in the business.

    Happy Innovating!

    Startup Nation in Two Sentences: The tiny middle-eastern country of Israel has become a global hotbed for innovation and technology startups. This culture of innovation can be attributed to a national culture of questioning authority, improvisation, and a few other key historical events that have forced the Israeli people to innovate or perish.

    Pros: Solid arguments on the foundation of innovation, Good historical examples, Easy read and interesting anecdotes

    Cons: A bit redundant at times and can seem like an Israeli tourism magazine ad

    Target Audience: Those who aspire to create an atmosphere of innovation

    This book is best for: Business leaders looking to replicate an innovative culture

    Overall Rating: ♦♦♦♦ (out of 5)

    Here is the Amazon link to buy this book:


    Ratings Guide

    ♦ = Not worth your time

    ♦♦ = May be worth your time if it is specific to your industry or interests

    ♦♦♦ = A decent book and worthy addition to your library depending on your interests

    ♦♦♦♦ = A great book and an excellent addition to your library.

    ♦♦♦♦♦ = One of the all time classics. A must-read for anyone and everyone.

  • Book Review: Thinking Fast and Slow

    Thinking Fast and Slow by Daniel Kahneman

    Thinking, Fast and Slow

    Image Courtesy

    Don’t tell anybody, but the economist in me is breaking out. I’m starting to get more and more interested in behavioral economics, game theory, and decision theory as I grow into my commercial real estate career.

    I have found that the concepts I learn and grow to appreciate in behavioral economics are useful in my every day interactions with deal-makers and colleagues. Learning about how people make decisions and how they make rational choices given the information available is crucial.

    Let me see if I can bring it home to commercial real estate. Consider the following questions:

    Given the information available to me, should I build this shopping center?

    Given the information available to me, should I buy this flex industrial building?

    Given the information available to me, should I lease this office space to this prospective tenant?

    Given the information available to me, should I refinance my apartment complex with Life Company debt?

    Given the information available to me, should I pursue this retailer as a potential lease lead?


    Those are just a handful of examples of decisions facing CRE professionals that I would file under behavioral economics, game theory, or decision theory. You can certainly apply the concepts to tenants or clients:

    Given the information available to them, how will a tenant want to use this space?

    Given the information available to them, what will a shopper want to see in this center?

    Given the information available to them, what will visitors to my property want in their parking experience?


    Again, just a few examples of behavioral economics in action in our world, and I hope you can see why I find those concepts so relevant. They shape almost everything we do.

    That’s why I enjoy books like Thinking Fast and Slow by Daniel Kahneman. To call this a follow up to The Black Swan wouldn’t be fair, but I can say that they are highly related and TFaS quotes tBS fairly often. Black Swan told us how much we suck at predicting anything, particularly “outlier” events. I would say Thinking Fast and Slow is more about our everyday decision-making skills and biases.

    In the book, Kahneman discusses two systems of our thinking that he labels System One and System Two. System One is our automatic recall memory, our first impression, our first thoughts and reactions to the world around us. System one isn’t very good with statistics and is prone to mathematical errors and all sorts of biases.

    System Two is our more analytical, slow, methodical thinking system that takes the time to analyze probabilities, best practices, likelihood, etc. This is the system we use when we take the time to really break down a problem or decision and analyze it mathematically or systematically. We don’t rely on our impressions or memories of similar problems in System Two. We approach everything more carefully and methodically than we would in System One.

    A large section of the book is dedicated to the short-comings and biases of System One and how we, as imperfect decision-makers, rely too heavily on System One for our decisions. Kahneman does a thorough job of breaking down our biases and heuristics when faced with similar situations. He uses questions like: “Would you prefer a 40% chance to win $100 or a 8% chance to win $1000?”

    All-in-all the thought processes and common decision biases he examines are though-provoking and interesting, but I would warn you that his style of writing can tend toward academic. He is very skilled in describing complex scenarios at high levels, but tends to use numbers heavily and will stroll through complex psychological issues that the lay reader may not be familiar with.

    So, this wouldn’t be an easy beach vacation read that you leisurely peruse between trips to the pool. You need to take your time with Kahneman, take notes, and allow yourself a chance to digest these complex psychological contradictions. I think it’s worth your time to do so, if nothing else you will better understand your own short-comings in quick decision analysis and judgment and may be able to recognize when to slow down your thinking and engage System Two for some heavy lifting.

    Thinking Fast and Slow in Two Sentences: Each of us have two systems of thinking: System One (Thinking Fast) and System Two (Thinking Slow). System One is our quick-judgment, memory, and recognition center that is prone to errors in estimation while System Two is our more analytical and statistical system that methodically breaks down options to reach rational conclusions.

    Pros: Very interesting foray into psychology that explores decision-making, game theory, and behavioral economics. Well-researched and well-argued.

    Cons: A bit length and highly academic/mathematic in parts. Not a leisurely read.

    Target Audience: Any reader interested in human psychology, the psychology of decision-making, heuristics, game theory, and behavioral economics.

    This book is best for: Someone wanting to analyze and improve the way they make decisions and judgments.

    Overall Rating: ♦♦♦ (out of 5)

    Here is the Amazon link to buy this book:



    Ratings Guide

    ♦ = Not worth your time

    ♦♦ = May be worth your time if it is specific to your industry or interests

    ♦♦♦ = A decent book and worthy addition to your library depending on your interests

    ♦♦♦♦ = A great book and an excellent addition to your library.

    ♦♦♦♦♦ = One of the all time classics. A must-read for anyone and everyone.

  • Weekly Financial Markets Update – July 27th

    Equity markets: The S&P 500 rose 1.7% on the week to close at its highest level since early May. Somewhat surprising given the weakness in the highest profile earnings of the week — Apple and Facebook. On Friday word came out that Europe is talking about new steps to fix their ailing financial system. These rumors have become commonplace but for whatever reason the markets bought this one, sending markets soaring.

    Bond markets: The European news was bad news for safe haven assets, with treasuries getting whacked hard. Because of Friday’s move the 10-year treasury yield finished the week at 1.54%, up 0.08% on the week.

    Currency markets: The dollar fell 1% on the week — the bulk of the move happened on Thursday, not Friday, as the head of the European Central Bank eased concern over Spain’s finances, which led to a euro rally and dollar selloff.

    Interbank markets: 12-month LIBOR was unchanged on the week at 1.06%.

    Summary and next week: This week was the epitome of how short-term investors are struggling this year. The two big earnings data points, Apple and Facebook, were weak. The first reading of Q2 GDP came in at 1.5%, in-line with expectations. Yet an unexpected European headline on a quiet summer Friday afternoon led to a market surge.

    Next week is a big data week, with the key ISM manufacturing survey as well as the July nonfarm payrolls report. After that it gets really quiet until Labor Day.


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