Thursday, November 19, 2009

You can’t have a “Fire Sale” with out a fire


by: Mark Subervielle

In the real estate world, “discount” is the “new black”. If a buyer or investor

cannot get a substantial, deep discount, there is no other incentive to buy. Pure

speculation in today’s market has to have a very compelling reason to buy other

than “it’s a good deal”. It has to be a great deal, once in a life-time, fire-sale


But with out the motivation of a “fire sale”, there are no motivated fire sale

buyers. And without motivated sellers, you don’t have the discounted pricing and

a standoff is created. This “wait till the market recovers” mentality may work in

certain situations, like a well leased property with a decent tenant mix.

But vacant, partially renovated, and poorly leased or managed properties

are subject to the slightest winds of change in the market and can be

economically damaged virtually overnight.

So far there has been no accelerant to start the fire that would create a fire

sale and help this market recover. 

There is no RTC disposition type of activity where the auction of bank assets caused such a frenzy that

buyers were driving up the prices over and above what they could pay on the open market.

That type of buyer frenzy is not happening in this downturn. The economic spin

off from new purchases is what helps the recovery. And that is what is missing.

So as buyers and sellers stare at each other waiting for the other to blink, we

stand by watch the coals in the fire slowly burn out.