We put a lot of emphasis on the residential market when analysing the land cycle.
However, few are aware that historically, the commercial real estate booms and busts have had a far more significant impact on Australia’s economy.
The commercial real estate downturn in the 1990s for example, was a major event.
Despite the recession being officially over in 1991, the crisis for the commercial market peaked in the mid-1990s — with commercial median property values falling over 50% in some parts of the country.
Prices collapsed by around 60% in real terms, and by around 70% in Perth.
Compare that to the drop in the residential median price in the 1990 downturn — of some 10% — and it gives some idea of the magnitude.
Many property developers and investors went bankrupt or were forced to sell at a major loss.
There was a multitude of foreclosures.
Unemployment rose sharply, and many struggled to survive, with a wave of corporate bankruptcies.
The government took a number of steps to pump the economy, such as cutting interest rates and increasing government spending etc.
However, it took several years — right into the mid to late 1990s — for values to return to their pre-crisis levels.
Similarly in the 1970s end-of-cycle downturn, commercial values fell sharply. Properties were left vacant or underutilised.
The downturn was significant — however, from what little data we have on the 1970s, the bubble was smaller.
Inflation eroded away the overvaluation. Commercial real estate prices fell by 25% in nominal terms, but 50% in real terms.
The bottom line?
You can find opportunities in the commercial property market through the boom phases of the cycle — but get the timing wrong and it can wipe you out!!
One master of commercial real estate however, who has lived and thrived through some of the worse recessions, is Warren Ebert.
He’s the CEO of Sentinel property group and has earned a reputation in the industry as the ‘property whisperer’ for good reason.
Not only has Ebert timed the market well — getting in prior to the booms and selling down prior to the busts — but he also has a proven track record of delivering impressive returns for investors.
In fact, under Ebert’s leadership, Sentinel has delivered an average annual return of 13.3% since its inception, far surpassing the market average!
What sets Sentinel Property Group apart is its focus on value-add and opportunistic investments.
The company has a reputation for identifying underperforming assets with potential to add value — implementing strategic changes to maximise their value.
As Warren says,
‘We were never about buying best of breed, as far as high quality properties, because how do you make money on that?
‘We make money out of properties, and same as I think any corporate takeover. If you buy a company that’s being run the absolute best, everything’s spot on, how do you make money?
‘You make money by fixing problems.’
This approach has enabled Warren to deliver strong returns — even in challenging economic times.
I get a lot of letters from readers enquiring about commercial real estate. It’s a massive sector and unless you’re in the market — doing deals day in, day out — it’s not easy to keep on top of the trends.
With this in mind, I reached out to Warren for an interview yesterday.
Warren is an entertaining character — a down to earth guy who hates to see investors lose money. He cuts through the BS and delivers the facts as they are.
You won’t find anything as valuable as the information we discussed in the mainstream media. Warren is king when it comes to putting his money where his mouth is when it.
We discussed many things in the short amount of time available including:
- Why the changes we saw over COVID in the office sector are starting to reverse.
- Why he’s now investing in the office sector — and how to assess value.
- How to steer clear of the traps created by the smoke and mirrors of rental incentives.
- Why he’s not as bullish about WA as he is about Darwin.
- Construction costs have gone through the roof — what this means for established commercial real estate.
- Why he thinks it’s never been easier to make money!!
- And exactly what he feels about Dan Andrews (now he’s stepped down from power!)
Not only this, but you hear information on his latest Melbourne acquisition. A corporate park in Richmond that’s been purchased almost 25% below replacement costs at a 39% discount to the April 2022 book value of $132 million!
And on that note — if you are interested in reaching out to Sentinel to find out more, there is an Investor Presentation to be held Wednesday afternoon, 1 November in Melbourne.
(Call 07 3733 1660 for more information).
In Warren’s words:
‘When there’s bad news, you run towards it. You don’t run away from it. That’s where the opportunities are. Whether it’s a stock market or the property market or any type of investment, to make money, you’ve got to buy when most people want to sell. And it really isn’t that hard.’
It’s good advice IF you’re aware of the timing of the longer real estate cycle.
The market’s not about to tank yet.
We know what’s ahead.
Watch the interview below.
Editor, Land Cycle Investor