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 by more than 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 median residential price in the 1990 downturn, of some 10%, and it gives an 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 the 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 — 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 make a lot of money 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, 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 before the booms and selling down before 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, then 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 recently.
Warren is an entertaining character, a down-to-earth guy who hates to see investors lose money.
He knows the value of putting his money where his mouth is when it comes to sharing his insights — and I enjoyed the chat immensely.
We discussed many things in the short amount of time available, including:
- Why Warren thinks Darwin will boom to the peak of this cycle (falling in line with the forecasts we’ve made about the Territory in previous updates)
- Why he’s investing in shopping centres and achieving high returns
- How he’s adding value to his property investments with solar power
- Why he’s not as bullish about WA as he is about Darwin
- How he got into real estate and the lessons he’s gleaned along the way working with buyers, sellers, and investors.
- Why he thinks it’s never been easier to make money
- And how he times the market
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.
As our data analyst, and creator of the CAPE metric for forecasting future property returns, Philip Soos commented in an email to me recently, ‘The RBA holds – here comes the boom.’
Indeed.
Watch the interview below.
Best Wishes,
 |
Catherine Cashmore,
Editor, Land Cycle Investor
Comments