Real estate value add is shifting from acquisitions to operations

Real estate value add is shifting from acquisitions to operations

I talk to a lot of students and aspiring real estate professionals and the vast majority want to be deal guys. They want to be the rainmakers working in acquisitions, wheeling and dealing. While acquisitions is sexy, it’s becoming increasingly important to be a good at operations.

As part of a lean team, I’m involved in all aspects of the business from sourcing and closing deals, to executing the business plan. While you can still win on the buy through information asymmetry’s or fortuitous timing, I experience first-hand how deals can achieve out-sized returns based on great onsite property management and attentive asset management.

There are a few trends that will continue to push the value away from acquisitions and toward operations:

The marketplace for buying and selling property is becoming efficient
Driven by the internet and the institutionalization of the business, online marketplaces and high-quality data are readily available. Many segments of the business are still highly fragmented, but there’s a push toward online networks for the purchase and sale of assets such as Auction.com.

Capital is becoming a commodity
One of the unique skills that good acquisition guys possess is the ability to access investors and pitch their deal. While that will always be a valuable skill, real estate debt and equity crowdfunding platforms are opening up a whole new world of capital for private real estate deals. These online networks, which enable anyone to connect with investors, shift the value from sales to track record and deal quality. With more efficient capital markets, it’s more likely that high quality deals get done and crappy ones do not.

If you’re just starting out in the business I advise you to learn more about leasing and marketing, construction, the permitting process, negotiating cable contracts, energy efficiency, preventative maintenance, and insurance. These things aren’t glorious, but they’re incredibly important. Merely underwriting deals isn’t a skill, the ability to envision a better use, then execute on that vision is.