Is Talent Analysis the Magic Key to Successful Real Estate Investing?Apr 2, 2018
The front page of The Wall Street Journal’s Review section on March 24th – said the following in very large type:
The U.K. Is Doing Just Fine, Thanks
Hearkening back to July of 2016 – right after Brexit – there were many – and I mean many – that thought the U.K., and London in particular, would get nailed. The fear was that everyone would move away and Britain would be screwed.
The Real Estate Philosopher’s article, dated July 11, 2016 was entitled Brexit and London and Talent, Oh My, and my main point – now about 20 months old – was exactly the opposite of the fears of the time. I said in boldface type:
London Will be Just Fine!
Okay, I was 100% right and (sorry to be a little bit humbuggish here) it is important to examine why I was right. My thinking at the time was as follows:
When you get right down to it, I don’t see the talent “wanting” to leave – uprooting their families to go where, exactly? There are other great cities in Europe for sure, but if your life is in London, I don’t see people eager to move somewhere else so easily. If you live in London and have family and business contacts there, your optimal first strategy is to figure out if there is a way to stick around.
And if the talented people that form the backbone of London’s financial expertise don’t actually leave then I am confident that everything will be just fine in the end for London. That talent will create the next upside, just as occurred in New York.
In a nutshell, my thesis was that the talent wouldn’t leave London and if the talent didn’t leave, then London would continue to be successful. And that has now proved out.
Of course, readers of The Real Estate Philosopher don’t know this, but I made “exactly” the same prediction at my law firm’s annual outing at the end of 2008. The only difference was that I made it for New York and not London. At that time, the Global Financial Crisis was in full swing, panic was everywhere, and many thought it was “game over” for New York. The financial world was in ruins, and everyone was blaming New Yorkers. Even the real estate market crashed here.
But The Real Estate Philosopher said the same thing, i.e., that the talent won’t leave New York City, and if the talent doesn’t leave, then New York City will be just fine. And that has been correct too – indeed, it is hard to find anything that hasn’t gone through the roof in NYC in the past ten years.
So I have now made the same prediction twice in a row, and in the face of widespread beliefs to the contrary. Does that mean I am right in my thesis and you should listen to me now?
Of course not! The graveyards are full of brilliant forecasters who got lucky a few times in a row and then it turned out to be pure luck. I am the first to advise that you should take what I am saying with a grain of salt.
However, I do think that I am onto something here with my theory that real estate investors should have a Talent Meter as part of their checklist of underwriting a real estate deal. The idea would be to gauge not just population growth and other demographic metrics, but also to gauge whether talented people are coming or going. This would include considering how that location – i.e. the city or the location – can compete for talent with other places trying themselves to attract talent.
One way or another everyone is fighting for talented people. Countries are doing it. States in the U.S. are doing it. So are cities. So are universities and schools. And so are companies and organizations of all kinds.
At our firm, our mission statement has been the following for about fifteen years. It has stood us in good stead, and we have no intention to change it – ever:
Attract, train and retain talent – also known for short as “ATR”
To conclude, my thinking is that the geographical locations that win the ATR wars will undoubtedly have the value of their real estate rise significantly, and the losers in the ATR wars will have the opposite result.
So consider developing your own Talent Meter to use when making your real estate investment decisions.