I was going to have this article be about applying Porter’s Five Forces to the real estate world. That will be a great article when I write it; however, A very interesting value-creating idea just struck me this beautiful afternoon in New Jersey, and I thought I would sneak this idea in first through this (very short) article.
If you will hearken back to my first article:
Using Drucker to “create” customers by marketing and innovation.
And then my second article:
Creating value by amassing intellectual capital in, and ownership of, small-sized niches.
As an outgrowth of both of these articles, I suggest that a great untapped market for creating value in real estate is through developing expertise in operating businesses that have real estate as a major component.
There are obvious candidates such as hotels, retailers that own real estate (and spin it off and turn it into REIT’s), and things of that nature. These are easy and obvious examples. And these are of course fields well-plowed so I doubt you can do what I advocate here. If you are a hotel expert, you are hardly unique enough anymore. What I urge here is picking smaller niches and using the theories I espoused in my prior two articles to create special real estate value in these niches in which you develop significant intellectual capital.
Some examples – I could think of off the top of my head -- are: amusement parks (small and large), garages, restaurants (and other related things like beer gardens), retail space that is just too large and could be turned into operating businesses (consider bazaars, farmers markets, specialty markets, pop-up stores), co-working space (a perfect example of this), shopping center owners with multiple locations creating almost private label brands by backing start-up retailers, urban for-profit schools, etc. There are probably an almost infinite number of ideas here.
Then follow the thinking outlined in my prior articles to create the necessary intellectual capital by learning everything possible about the operating business. Once you have achieved this, you have a powerful competitive advantage as you are the only one (yes, the only one!) who now understands both real estate and the subject operating business. As we all know, knowledge is power, and this power gives you a great advantage in buying, investing, operating, selling, financing and – of course – creating value.
Is this easy? Of course not. But what choice does everyone have? One thing that the internet has done is taken away the easy pickings, since everyone knows everything at the same time. Anything that is simple isn’t going to be a value creator because everyone will see the same things and bid the price to a point where the risk and reward equilibrate, so the best you can do is perform “average”. The goal now has to be to create intellectual capital that only you have and the only way to do that is by creating that capital between your own ears by learning and thinking and creating.