Critical Thinking: The What, the Why and Implications on Property Investment Value

Investing, developing and managing commercial real estate is all about critical thinking by continually asking: “What is it? Why? And then what are these resulting implications its value? This mental model is indeed critical (pun intended) to evaluating property value.

If you look at a building or a piece of land, well, what is it? You might just say it’s a car wash with minimart building, but it could also be seen as housing complex or hotel redevelopment, etc based on what the interested purchaser believes is its highest and best use.

What is your rationale for what you believe the ‘what’ is? From there, what is the implication on value? Is the value of that property, as a vacant retail strip center, higher or lower than its value based on redeveloping it to a housing complex? The what and the why, and the implications on value are the mental models within critical thinking in investing in commercial real estate. A big part of the “Why” is “To Who?” In other words, a private investor seeking to simply buy and hold the retail center will differ in why the view value to be higher or lower than a hotel or housing complex developer. Therefore, the “Why” includes “to who?” in rationalizing the property value.

This critical thinking framework is further driven by the fact that real estate requires input and involvement of multiple disciplines. this is one of the reasons why I enjoy real estate so much. In my role as a developer, investor and a manager of an investment company I get to be involved in and manage a fun variety of disciplines. I may host a group of leasing brokers at a property to talk to them about the vacant space and what they view to be the opportunity on behalf of their prospective tenants. Before that, I might be on a call with my architect to talk about how we can improve a couple of areas in the site plan to be more efficient for the flow of circulation. To do that, I will consult with our attorney regarding refinance of our value creation plan with a group of our investors and how that legal structure will work.

And so just right there you are talking to an attorney, a broker, an architect, and then after all of this, I have to go and talk to our construction team about whether or not we can make a change to the design. What will that do to the budget? And then in turn, what does that have as an implication back into the value?

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