Our area has seen continuous growth and the number of new constructions seems to be endless. Property in our area, which a few decades ago sold for pennies per foot, has skyrocketed to several dollars per foot. This continual push for more buildings and the upward price spiral has created an environment that seems to be making big winners with few losers.
Every time a market gets to that point, where anything and everything seems to work out, some people will end up getting hurt.
True professional developers use sophisticated modeling when assessing a project’s returns and risks. A sound financial analysis including calculation of owners cost of capital, ROI benchmarks and net present value based on various rents, commercial terms and many factors will be performed.
Recently, I visited a very sophisticated manufacturing plant in Ohio with some colleagues. The building has amazing engineering. Piping and control mechanisms with electronic monitoring systems were in place to ensure that the produced product was done right every time. The building’s engineering had to account for specialized containers to hold 5,000 gallons of liquid with an area for future expansion.
Pouring a concrete floor and setting up production just wouldn’t have worked. It took foresight, excellent technology and expert engineers to build this facility. The risk for the owners is in the millions of dollars and the owners know their business well, so they did everything possible to ensure that they would get a positive return on their investment.
There are many individuals and entire organizations in our market who claim to be real estate development professionals. With demand for real estate and excess money available from investors, buildings have been erected throughout the region and many are able to provide returns, but continued positive cash flow over the long term is a long way off. be guaranteed. Some of these organizations and investments will fail.
When market demand is as strong as we’ve experienced in our area, it’s easy to trick inexperienced contractors and unsuspecting real estate agents into what appears to be success. In the longer term, those who lack experience, especially those who “cut corners” or “shoot from the hip”, will fail.
Two of the most notable property management and development companies in our area are Goldmark and the Kilbourne Group. The two follow somewhat different paths, but they have both grown and prospered while running their respective businesses for the long haul. Goldmark (now primarily engaged as an actual investment trust named Sterling Multi-Family REIT and Sterling Office and Industrial REIT, started with small properties, then as they rose in value after debt repayment, flows Cash continued to invest in larger and different properties based on market demand.
Kilbourne Group, as most people knew it, was, and still is, a driving force behind the redevelopment of downtown Fargo. Downtown Fargo had languished for years. The folks at Kilbourne Group saw an opportunity and got to work full speed ahead. At the time, it was a big risk and it took vision. It’s hard to know how sophisticated their analysis was, but they succeeded. Today many people try to copy Kilbourne. Some will have some success, but others will fail.
When thinking about getting involved in real estate development, remember the saying, “When a person with money and no experience meets a person with no money but experience, soon the the person with money will have experience and the person with only experience will have both money and experience.
Matthew Mohr is president of Dacotah Paper Co. based in Fargo, North Dakota.