Capital and Technology Drive Real Estate Change

How Different Is the World Today? ... Read this. "The European commercial property market is huge... But unlike other large physical markets, this market remains unsupported by derivatives. This complicates trading and limits liquidity." [Translation: The traditional real estate market is not efficient.]

The speaker is Steve McMillan, senior managing director for GFI Group in Europe, and he is quoted in CB Richard Ellis' press release last week, GFI Group Teams with CB Richard Ellis to Develop Derivative Trading in USD $4.2 Trillion European Commercial Property Market. (July 6, 2005)

One of my panels at Realcomm (Old vs. New) didn't get quite that wild. But it did reflect the enormous changes that commercial real estate has experienced in the last ten years. Remember what your business was like in June 1995 -- before the Internet explosion and the (related?) dramatic decline of interest rates?

Who could have predicted 4% and 5% cap rates in the U.S.? Not Terry Dickens, CEO of Bixby Land in Long Beach. No way. Dickens believes that the influx of capital and resultant compression of capitalization rates has had a huge impact on the management and ownership of real estate.

Technology drives change, too. In a previous job, Dickens' boss "gave" him two Apple IIs (in 1977) -- one for his office and one for his home. The Apple II had no hard drive, just a floppy diskette for data storage. But now he could work at home and the office. He was more productive!

Fast forward almost twenty years. Dickens is now the boss and (like everybody else) occasionally works at home. But with his IP phone, callers cannot tell if he's in the office or at home. He likes the mystery.

Question: Will we look back from 2015 and find it hard to imagine real estate investing without derivatives?

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-- Peter Pike