We’re going to look at several tactics today that help businesses who invest in commercial real estate prosper in downturns and recessions. After speaking with over 1,000 investment, development, and equity groups over the course of the last year, it appears that most of them try to invest in a variety of asset classes, including multi-family, BFR, retail, office, industrial, self-storage, land, and more, rather than focusing on just one or two of them. Although this strategy might be effective for some, we think it puts investors, equity partners, and ownership at risk of loss. Here are a few justifications for this perspective and the reasons Concord Development Partners chooses to “Stay in Our Lane.”

First off, a deficiency in knowledge and comprehension of particular markets may result from a lack of specialization within a given asset class. Every asset class has its own unique characteristics, patterns, and risk profiles, such as multi-family, office, retail, or industrial. Making poor investing judgments and lacking appropriate market knowledge might arise from not specializing on a small number of selected asset types.

Secondly, an organization’s resources are diluted when it tries to invest in several asset types. This results in a thin distribution of both people and financial resources. Due diligence, management, and property and market research become dispersed, which makes it difficult to achieve the depth and focus needed for profitable investments. Insufficient resources might result in lost opportunities, ineffective operations, and challenges in providing investors with substantial returns.

Inefficient capital allocation might also result from investing in all asset classes. In certain market or economic cycles, some asset classes may do better than others. Investment companies risk missing out on profitable possibilities to put capital where it can yield the highest returns by not concentrating on particular asset classes. The performance of the entire portfolio could be hampered by this lack of strategic capital deployment, leaving equity partners and investors with below-average returns or missed opportunities for return on investment.

To sum up, investing across a variety of asset classes may reduce the possibility of achieving economies of scale and operational synergies. Focusing on one or two asset classes enables the growth of specialized knowledge, established procedures, and efficient operations. Investment businesses can take advantage of economies of scale and operational efficiencies by focusing their efforts and resources, which will ultimately improve their overall performance and profitability. 

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