October means baseball. Meaningful, dramatic, high-energy, playoff baseball.
In our world, analogies to baseball are frequent, because Commercial Real Estate is apparently best understood in those terms. It is common to hear things like, “What was the company’s batting average this year?” or “Which brokers are aiming to be heavy hitters?”
It’s true the vast majority of Americans still consider baseball to be America’s pastime. It is the all-American sport and, while the game has changed over the decades, baseball is still growing and popular around the globe. Being a passionate fan of the game and a former high school and college player, I couldn’t help but find myself drawing parallels to my job off the field while watching the World Series this fall. Turns out, baseball and Commercial Real Estate are more similar than I would have immediately thought.
It’s a Long Season
Although pitchers and catchers report to spring training every offseason in early February, the final out of the World Series isn’t typically recorded until mid to late September. It goes without saying that baseball’s 8–month, 162-game regular season is long. Extremely long. So long, in fact, that a growing number of progressive-thinking minds in the game – including baseball’s commissioner – have considered shortening it. The record books are full of players who come out strong in April only to fade and be forgotten by August. This is also true in real estate. Phenoms who scored big during bullish market rallies have disappeared when markets turn south.
Commercial Real Estate development, too, takes a very long time. Often delayed by months or years, real estate transactions require an increasing number of moving pieces to align in order for them to be successful. For developers, the long season means preparing your properties for development, including securing all the necessary entitlements, building, fixing, and inspecting. Why is real estate development so risky? High front end costs and long lead time. And in real estate, time equals money and time equals risk.
For investors, the long part of the season involves watching the fluctuation in spreads, touring real property, finding investors, seeking new avenues to raise capital, and lots and lots of legal negotiations.
The common denominator in all of these things is time. Significant amounts of time.
It’s a long season.
It’s a Team Game
Sure, professional baseball players sign individual contracts and real estate professionals will typically get compensated based on an individual performance but, simply put, it takes a team to win games.
The best baseball managers will develop their line-up of role players – each with a completely unique skillset – over the course of the season. They tweak what doesn’t work, and adjust rosters based on performance, injury, and trades.
Players, too, rely on teamwork to find advantages in games.
Power hitters rely on the on-base guys in front of them so they see better pitches during their at-bats and have more Runs Batted In (RBIs). Bullpens rely on starting pitching staff to put them in a position to turn a 7th inning lead into a win. Rookies rely on veterans. Managers rely on assistant coaches.
Similarly, Commercial Real Estate transactions utilize a multitude of individuals who perform in a number of functional silos, including legal, environmental, marketing, finance, management, operations, engineering, architecture, and construction to get a deal across home plate. The best real estate professionals will have the experience to put these teams together to facilitate the dissemination of information to all the right people.
Teamwork is critical in baseball and it is critical in real estate.
It’s a team game.
It’s in the Details
Why do the world’s best players spend every spring practicing a game they’ve played their entire lives? Because the margin between good and great is razor-thin.
Three hits out of ten at-bats will likely get you to the All-Star game while two hits will get you a bus ride to the team’s AAA affiliate.
The same attention to detail goes for real estate professionals. Those who spend the extra day modeling cash flows – the ones who stay after hours to make extra production calls and read due-diligence materials – they are the ones who reap the biggest benefits long-term. Luck exists, but in baseball and real estate, luck is the product of a good strategy, good habits, and superior execution.
Real estate and baseball are both littered with complex statistics and metrics designed to help “way through the long season. Real estate professionals determine how prevailing market-cap rates and market conditions affect borrowers’ returns; likewise, baseball statisticians attempt to build winning teams using metrics like “WHIP” (Walks plus Hits per innings Pitched), “OPS” (On Base plus Slugging Averages), and “WAR” (Wins Above Replacement).
Knowing how to use these tools
It’s all in the details.
The author, Josh Siegel, is an Analyst at Metropolitan Capital Advisors. When Josh isn’t analyzing deals, he is a passionate Baseball fan and proud supporter of his hometown team – the Colorado Rockies. Feel free to email Josh at firstname.lastname@example.org or contact any of Metropolitan Capital Advisors’ senior directors (www.metcapital.com) to learn more about how our firm can help facilitate your commercial real estate capital requirements.