Over Leveraging Is not Fun, Caution ! Norair Yeretsian

Discussing the real estate market in Toronto last week,
an investor announced his latest purchase.

First among many he claimed !
I love the entrepreneurial spirit…

As he described the investment strategy they planned to
employ to quickly a mass a huge  portfolio of real estate assets.

We are going to start buying income properties .

We are going to leverage aggressively the assets and
the income to purchase more and more!
Never is enough ? I just listened .

At least you have a plan, that’s a good start.

I think I understand the logic and the rational of the investment plan.

This is the time for us to buy and build up the portfolio of assets.

But you are building up on Debt, I countered .
How do you plan to pay it off or control the level of debt going forward?

We will worry about that later, we are young.
Right now build up, ramp up : growth is the aim.

I began to worry for them. I recalled the War stories I had read
in Professor William Poorvu’s book The Real Estate Game.

As he ” invoked the lessons of some of the biggest players in
real estate in this century. Bill Zeckendorf, for example, was one
of the most creative and productive developers who ever played
the real estate game. He gave us Kips Bay in New York City,
Mile High City in Denver, Century City in Los Angeles,
Place Ville Marie in Montreal — and eventually had most of
his properties taken away from him.

It’s  important to understand what Zeckendorf got wrong
( for example, getting
too far out in front of reality and overleveraging his properties ),

as well as what he got right
( a vision of the future of our downtowns that was uncannily accurate).

We’ve recently seen more or less the same phenomenon replayed

at London’s Canary Wharf, developed by the ambitious Reichmann family

of Canada.”

Let’s discuss it , what alternative strategies would you recommend they consider ,

rather then building an empire of Debt ?

twitter :  EnvoyCapRealty

nyeretsian@yahoo.com May 18, 2010

Deep Economy : Do things Locally ! Norair Yeretsian

The Wealth of Communities and the Durable Future :
Deep Economy by Bill McKibben is a book about location,location ,location !
You and I have the best location, to do all the things we want.
In Deep Economy, Bill McKibben explores our current state and problems and
suggests we can do better by doing it within reach/locally.
And thereby build a stronger and healthier economy by building many
micro local economies. Because we now have challenges everywhere and
it weakens the whole economy, example our food :

” Even apart from terrorists, the centralized food  system we’ve built presents risks.
The industrialization of poultry is the nub of the problem ‘ of avian flu ‘ says
Kennedy Shortridge, a Hong Kong microbiologist who has spent three decades
studying influenza viruses. Concentrated agriculture also manages to make us
sick on a fairly regular , if less dramatic, basis. Seventy-six million American
fall ill annually from food-borne illness; 300,000 are hospitalized, 5000 die.
Salmonella is the biggest culprit, and its prevalence has doubled since the 1070s,
which makes sense when you consider the enormous poultry barns and cattle
feedlots that grew up in those years.”

We may need to go smaller , faster.
Detroit , Michigan is planning on destroying many urban vacant homes
and creating farm land : Urban farms.
City councils in Toronto and London , Ontario have been debating whether
to allow residential properties the permitted use of : raising chicken, and
possibly other farm animals in their backyards ?
There is a minor movement to getting vegetable gardens growing on Hydro fields.

We could grow more of our food locally and become healthier in the process.
You and I have the best location : Ontario, Canada to do all that we want.
Geographically well located, and with a nice seasonality to grow and raise wonderfully.

Challenges exist and they must be addressed. Environmental issues of the lands is
another concern, testing must be done first prior to growing things on these properties.
And someone needs to establish healthy standards for the soil conditions for that the
results are beneficial for all.

Land and the quality of our land is very important for our health and well being.
When you buy and sell property there is a responsibility to care and protect the
future uses of these properties. Due diligence is important in this area to satisfy
all concerned that the properties are safe and clean ; environmentally.

Adam Smith (1776) in The Wealth of  Nations that ” it is not the actual greatness
of national wealth, but its continued increase” which raises wages.
Benjamin Friedman in The Moral Consequences of Economic Growth
provides a modified perspective on this increase. How modern commerce was
thought to be a one time event — that they would soon hit a plateau.
The new economic revolution showed that businessess could keep improving
their operations, apparently indefinitely.

” By the early twentieth century, increasing efficiency had become very nearly
a religion, especially in the U.S., where stopwatch-wielding experts like
Frederick Taylor broke every task into its smaller parts, wiping out inefficiencies
with all the zeal of a pastor hunting sins, and with far more success. “
writes Bill McKibben ( Deep Economy ,2007; Times Books)

Is it time to re-think, re-set and get back to the Garden of Eden ?

Let’s discuss it :  Twitter @ EnvoyCapRealty  or just below …

nyeretsian@yahoo.com May 16, 2010