This week’s perspective is provided by Jim O’Connell:
June 1994 – does anyone remember much about that month 18 years ago? I do, but it wasn’t because I got married or had kids born then but I do have two very vivid memories of some days back in mid June that year.
First, OJ Simpson had his infamous “Bronco Chase” in LA., and second, I was in Kansas City for a week going through training to be a CCIM Instructor. So what made me think about that?
Our team has been going through several days of analysis and valuation of a major, Midwest Class A, CBD office asset and the decisions that need to be made about it. We have been through numerous exercises about where the value of the property is and why it should be what we believe it is. And it got me thinking that for as much as the world and the investment real estate business have changed in these last 18 years, the subject and basic analysis of real estate returns hasn’t really changed much at all. Sure, we’re using much more computer analysis to run our numbers instead of an HP 12c and a yellow pad. But all in all, the basics about returns have stayed the same. Yes, the metrics of what a “good deal” looks like have also changed, but the proven techniques of cash flow analysis still seem to generally rule the day.
So the next time you fire up that Argus or Excel program don’t forget what’s going on behind all those key strokes and inputs – it’s still the basics that have been around for years giving us those cap rates, IRRs and cash-on-cash returns that we use to decide if it’s a deal that needs to get done.
Jim O’Connell, CCIM