More than a decade ago, I concluded that the adage “location, location, location” was outdated — apologies to its presumed author, Lord Harold Samuel. In the aftermath of the Great Recession, I made the case that other factors, specifically liquidity and luck, had earned their rightful place alongside location as key influencers for successful real estate investing.
Location will always be a critical component of any acquisition strategy. Without a good location, an investment could face insurmountable challenges. Liquidity is necessary for those times when unexpected capital expenditures may be required to fix a property defect or replace a relocating or bankrupt tenant. Finally, it never hurts to have a little luck on your side. Thus, the evolution of a new industry standard bearer: location, liquidity, luck.
Twelve-plus years later, the phrase is as relevant as ever. Yet in terms of investing, those three factors aren’t truly parallel, particularly when you consider control and predictability.
Real estate investors strive for predictability and control. It allows them to build and substantiate an investment thesis. Investors can control location by acquiring properties whose barriers to access limit competition or those that are directly in the path of progress. Similarly, savvy investors control liquidity, or at least take steps to make it more predictable.
Luck, however, is different. Luck is not a commodity to be bought or traded. Some contend you either have it or you don’t. I have concluded that while luck is unpredictable and cannot be controlled, there are things investors can do to be prepared for and enhance the ability to be a beneficiary of luck. Some of those things, based on an investment track record spanning more than 20 years, include:
- Being open-minded about potential solutions. Remember, unique times call for unique considerations. Evolve; don’t stay static.
- Being visible and connected so that luck can find you. People aren’t mindreaders; you must be out there so people know you are an option.
- Adhering to your strengths and tolerance for risk. Don’t force things to influence your luck unless it is consistent with your core practices.
- Remembering the fundamentals. For all the evolving you and the market may do, the industry is cyclical; fundamentals will always be important.
Following are three examples of how our firm has created our own luck with these principles in mind.
Good and lucky with help from the government: There are scenarios in which good luck triumphs over bad. One of our assets had been leased for more than 30 years by a single tenant that ultimately went bankrupt. The 50,500-square-foot property occupied a premier location in the heart of one of Chicago’s well-established and highly sought-after residential neighborhoods.
While the property drew interest from traditional retailers, it also attracted the attention of the healthcare community, including one organization seeking to further establish a foothold there. A potential roadblock, however, was the pending potential merger between that healthcare provider and a competitor. We also understood that a governmental ruling could block the merger, increasing the importance and value of our property to the one healthcare provider. Luck was on our side: the merger was denied. Our site ultimately became the site of choice, and ultimately the flagship for a large healthcare system. We were open-minded and adhered to our tolerance for risk knowing that regardless of the merger, we had an attractive retail location.
Good and lucky with help from the tax code: One of the most successful deals we ever completed started with a +/-7 acre land acquisition in Alexandria, Virginia. The parcel was directly in the path of growth and progress, just ahead of a significant housing boom. The combination of the housing boom and the presence of a buyer with a need for a 1031 exchange — with limited time to complete the exchange — enabled us to sell the asset on favorable terms. In addition to a great site, we were visible and connected, which helped create a successful outcome.
Good and lucky with help from demographics: Sometimes the luck that happens results from the strategy you develop to overcome a potentially disastrous outcome. This may be best exemplified by the acquisition of a lifestyle center in Chicago’s northern suburbs. While fully occupied, our due diligence raised concerns over the future tenancy of the largest tenant, a national bookseller. We took a calculated risk, believing that we would be able to secure a new tenant with greater financial strength and stability to replace the original tenant. There were advantages and flexibility to the space as it offered a unique, two-story layout. Being open-minded about a potential solution, we helped shape the concept of medtail space in Chicago with a 40,000-plus-square-foot lease to a large, well-known healthcare provider within months of acquiring the center.
In the absence of certain levels of predictability and control — an increasingly common characteristic in today’s market — real estate investors need every competitive edge, and every bit of luck, possible. Just as you can’t predict when a large anchor tenant may have to file for bankruptcy and leave a significant hole in a property or portfolio, no one can tell when, out of the blue, a tenant comes along with a requirement that absorbs a significant block of space.
While luck can’t be bought or sold, investors should understand how they can influence it, or recognize the opportunities to seize it when it comes along. At the end of the day, sometimes success comes from being lucky rather than simply being good.