Being a top asset manager for a real estate syndication or a real estate investment fund requires a lot of asset management. It requires the ability to handle different properties, portfolio properties, or even a single property to know what’s going on so that you can make the best decisions possible for the benefit of your investors. We talked in the first video about property analysis, and we talked in the second video about financial analysis. This third video is going to talk about market analysis, what is going on in the market, because that’s going to drive not only how we run our assets and how we govern them, but also how we look at whether it’s time to buy more assets or sell them.
We’re going to talk about different approaches to it, not only demand drivers but also the hierarchy of market analysis and a framework for looking at it. This is a blast from the past video. It is from a series of videos I put together for very high-level real estate professionals, not only the best-performing brokers but also people from REITs and other investment funds who are performing at that top level but wanted to take on the umbrella, do their own syndications, and put together their own investment funds. I know you’re going to find it useful.
We’re talking about operations, or we’re talking about custody. In this particular video, we’re talking about market analysis. Now you may ask yourself, why are we talking about market analysis? I thought that was something we do when we’re finding the property. Well, the reason we do it is to set a baseline for when we have that property, and we’re going to be doing property management. We have that baseline of where it is, and that baseline for the market analysis is going to feed back into the command. It’s going to help us make better decisions about what’s coming down and changes that are happening.
It also is going to make an impact when we do this analysis. We will be able to use this to communicate better with our investors about where the property is at each moment whenever we send those analyses to them. So that they always have an up-to-date feeling that we’ve got our handle on the property. The reason is to set a baseline and to measure change. In order to get from point A to point B, we first have to know exactly where point A is. We have to know where we are on the map at any given point. The only way to do that is to begin by doing a market analysis of the property as well.
Now, to start us off on this discussion of market analysis, let’s talk about what those drivers are. What are the demand drivers for a property? Well, we’ve got our basic property types. We’ve got our apartments, and this includes homes as well.
The primary driver of apartments and single-family residences is population. If population is going up, there’s going to be an increased demand on housing. If population is going down, then that’s going to create a decrease in the demand on housing. What about for office and industrial?
We still have a demand driver of population. If there are fewer people, there is going to be less demand put on offices and industrial. But the big one is employment. The more jobs that are being created, the more need there is for office space or industrial space to fill those jobs. Lastly, let’s talk about retail. Again, population is important because if there are no people to shop there, there’s not going to be much demand for retail. It’s also secondary to employment. But the big demand is disposable income.
These are the demand drivers that we keep our eye on, and they need to be measured particularly for your property or property types. As we go along, you’ll see that we’re looking at those very specifically. Let’s start with how we do our building analysis, our market analysis for a building. Here, we’re going to start with our SWOT analysis. What are the strengths of our building? What are the weaknesses of our building? And this is as it relates to the market itself. What opportunities do we see? And what threats are out there?
In other videos, we talk specifically about property analysis and financial analysis. But here we’re trying to look at the building through a slightly different lens. We’re looking at it through the lens of how this building is seen in the marketplace. That’s what the SWOT analysis focuses on very well, being able to see it through that lens.
Now we’re going to zoom out and look much broader at the neighborhood. We want to document and map where in the neighborhood this is. We want to know what the boundaries of that neighborhood are just so that we can document it and make sure that we understand changes to the neighborhood versus changes to the city at large. We want to know what lifecycle stage we’re in for the different property types at this point in time. Is this really an expanding area? Are we in an expansion phase? Are we in a recession phase?
It makes a big difference because it will pinpoint exactly when we start measuring changes that take place in the area around us. We’re also wanting to have a good idea of our demographics and our psychographics. Psychographics gives us sort of the flavor, it’s more of the qualitative view about who the people in this neighborhood are. Lastly, what are the general trends? Where has this neighborhood been going? Is it gentrifying? Is it becoming more industrial? Are income levels going down or up?
Now we’re going to zoom out even further and look at the entire region. In the region, we’re talking about the whole area, maybe it’s the Metropolitan Service Area, maybe it’s the whole county. Here, we again want to know the demographics, particularly what the population is doing, and employment. We want to know what’s the general absorption of new construction or properties becoming vacant. What’s the normal vacancy?
For all of these, we want to have this map. There are specific things that we especially would like to know and have documented early on so we have that baseline to measure against. I’d like to know what the vacancy rate is, what the sale comps are, what the lease comps are, how those demographics are set, and how they are changing. These go to all three of these areas. I want to know those for each of them because I want to have that baseline that I can measure against and talk to my clients about. I can also manage my property much better based on it.
That was the video on market analysis. Not only are those demand drivers important, but also that framework for market analysis, that hierarchy framework. What’s important at the property level all the way to the very big version of what’s important, and how it affects everything. That expanding view is what top asset managers do in order to be successful asset managers.
My name is Tilden Moschetti. I am a syndication attorney for the Moschetti Syndication Law Group. If we can help you with your syndication, putting together an investment fund, we’d be happy to talk with you. Not only do we help you with the compliance piece of it, but we also can apply all of our expertise and knowledge in the business aspect of being a syndicator and investment fund manager ultimately so that you are successful. If we can help you with that, please don’t hesitate to give us a call.