Big real estate investors jumping out of the hurt-by-remote-working office frying pan into the rent-controlled, sue-your-ass-off apartment business fire
Posted by John Reed on
Today’s Wall Street Journal says the top office building owners are switching to housing.
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Big mistake. They apparently forgot why they got out of rental housing. Political risk.
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I was the president of the Harvard Business School real estate club in 1976-7. One guest speaker we had was Claude Ballard. He was the biggest real estate investor on earth, the head of PRISA, the Prudential Real Estate Investment Separate Account. I asked him why they stopped buying residential.
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“If you own residential, you have to raise rents. If you raise rent on a little old lady she may call the media and complain and be on TV saying Prudential is gouging me. Prudential has a retail image to uphold to sell insurance policies. We cannot have that bad publicity.”
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So now, over 50 years later, big institutional investors like Boston Properties and SL Green Realty, Empire State Realty Trust, and Silverstein Properties are going to switch to building and owning apartments? Very bad idea.
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True, these companies do not have a retail image to protect. But they are deep-pockets litigation targets in what I once read was the most often sued business in America.
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I have seen this comical pattern many times before. When the stock market is bad, the stock refugees all flood into real estate and screw that up. When apartment buildings stopped appreciating, investors claimed they were buying them for tax shelter. Then when the Tax Reform Act of 1986 wiped out the tax benefits, they claimed they were buying them to rehab them.
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Uh, quite rare is the building that can be profitably rehabbed.
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Part of the problem is the brokers. When people stop buying asset X, they have to switch to asset Y because they make their living from transactions, good or bad.
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I once read that the purpose of college reunions is to be reminded why you did not like certain people when you were student. I sometimes go to s restaurant I have not visited in a long time only to be reminded there WHY I have not gone there for a long time.
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The grass is always greener on the other side of the street. The girls all get prettier at closing time. If you can’t be with the one you love, love the one you’re with.
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This is all quite stupid and one would think unbecoming a Wall Street Mogul who wears $5,000 suits.
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Investors of all stripes and sizes should have objective criteria for what they require in an investment. I do not oppose them switching from asset category A to category B from time to time.
.
Big mistake. They apparently forgot why they got out of rental housing. Political risk.
.
I was the president of the Harvard Business School real estate club in 1976-7. One guest speaker we had was Claude Ballard. He was the biggest real estate investor on earth, the head of PRISA, the Prudential Real Estate Investment Separate Account. I asked him why they stopped buying residential.
.
“If you own residential, you have to raise rents. If you raise rent on a little old lady she may call the media and complain and be on TV saying Prudential is gouging me. Prudential has a retail image to uphold to sell insurance policies. We cannot have that bad publicity.”
.
So now, over 50 years later, big institutional investors like Boston Properties and SL Green Realty, Empire State Realty Trust, and Silverstein Properties are going to switch to building and owning apartments? Very bad idea.
.
True, these companies do not have a retail image to protect. But they are deep-pockets litigation targets in what I once read was the most often sued business in America.
.
I have seen this comical pattern many times before. When the stock market is bad, the stock refugees all flood into real estate and screw that up. When apartment buildings stopped appreciating, investors claimed they were buying them for tax shelter. Then when the Tax Reform Act of 1986 wiped out the tax benefits, they claimed they were buying them to rehab them.
.
Uh, quite rare is the building that can be profitably rehabbed.
.
Part of the problem is the brokers. When people stop buying asset X, they have to switch to asset Y because they make their living from transactions, good or bad.
.
I once read that the purpose of college reunions is to be reminded why you did not like certain people when you were student. I sometimes go to s restaurant I have not visited in a long time only to be reminded there WHY I have not gone there for a long time.
.
The grass is always greener on the other side of the street. The girls all get prettier at closing time. If you can’t be with the one you love, love the one you’re with.
.
This is all quite stupid and one would think unbecoming a Wall Street Mogul who wears $5,000 suits.
.
Investors of all stripes and sizes should have objective criteria for what they require in an investment. I do not oppose them switching from asset category A to category B from time to time.
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