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How do real estate professionals prepare for the next big crash?

Ben Myers | The Numbers Game | 2015-05-10

Ben MyersI fell into real estate research as a career nearly 15 years ago. I’ve tracked millions of numbers, followed thousands of projects, written hundreds of reports and learned from some of North America’s top real estate minds.

Establishing myself as a housing market expert, I was quoted in newspapers across the country, appeared on nationally televised projects, and was asked to be a keynote speaker at industry events and panels alongside Canada’s top real estate economists.

Not a week goes by where I don’t expand my knowledge base of macro-level economics, real estate finance, new home sales and marketing, development and planning, investments, and project/location-specific housing trends. The problem is, the more I learn, the more things I realize I don’t know, and may never know.

Approximately 8,000 syndicated mortgage investors

In our partnerships with other developers, we typically source capital as our primary responsibility. There are approximately 8,000 syndicated mortgage investors who fund Fortress projects, totaling more than $500 million since 2008.

I compile market reports, forecasts, presentations and commentary for these folks on a regular basis, and feel personally responsible for providing them accurate, relevant, timely and well-researched information and outlooks.

My greatest fear, however, is what I don’t know. I loathe my incorrect forecasts, but the reality is (like we recently experienced in Alberta) an OPEC policy change, a terrorist act, a major case of fraud, a government regulation modification or a natural disaster can immediately render meaningless the most well-researched real estate forecasts.

Contrarian opinions and reporting

Many of the contrarian opinions and reporting on the real estate markets lack any originality or in-depth knowledge of the national or local level markets. Despite this reality, I tend to read most of them, searching for something I may have missed.

I read as many articles, research papers or books dealing with market corrections or disruptions as I can find, and try never to summarily dismiss any findings despite the source (which is difficult with these groups of ‘crying wolves’).

In the latest book I’m reading called The Black Swan, author Nassim Nicholas Taleb discusses the narrative fallacy: our tendency to try to simplify complex problems and situations. He writes people like stories and we like to summarize and simplify. We prefer compact stories over raw truths, which distorts our views of the world, especially as it relates to rare events.

Taleb suggests you should not try to predict precise “Black Swans” (rare events), as it tends to make you more vulnerable to the ones you did not predict. His suggestion is to invest in preparedness, not in prediction.

Big waste of time

There is not a bigger waste of time, energy and money than studies relating to overvaluation in Canadian real estate, or the statistical debate over whether or not we are in a bubble. Resources should be spent on preparing ourselves for a scarce event such as a real estate crash instead of worrying about what degree of damage it might do should it occur at some unspecified time in the future.

If a child almost drowns in your neighbour’s pool, this scare is going to make you a lot more diligent regarding kids in your own backyard. This is the same phenomenon that has occurred in Canada as we watched the pain the market correction inflicted on our neighbours to the south.

We have taken many steps in the right direction, been more cautious and conservative, and I feel the probability of a market disturbance is much lower as a result. However, myself and my colleagues at Fortress won’t let our guard down, and we have guidelines and strategies in place to deal with all market conditions.

It does not matter who believes we are in a bubble or overvalued or oversupplied; we are prepared for actual market movements and not fictionally defined ones.

Fortress Real Developments

Fortress Real Developments is a diversified real estate development and investment company that partners with established builders and developers across the country. Fortress sources equity capital for the partnership in addition to providing value-add services such as market research, structuring of debt, marketing and other realty services.

Ben assists in evaluating both the market conditions and projects that Fortress is active in. Follow his blog posts and commentary on the Canadian housing market at www.fortressrealdevelopments.com/news or follow him on Twitter at @BenMyers29.

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About the Author ()

Ben Myers has over a decade of real estate research experience with several firms in both the United States and Canada including Hanley Wood Market Intelligence in Dallas and Altus Clayton in Toronto. Most recently Ben was Editor and Executive Vice President of Urbanation, a condominium apartment market research firm. Ben’s clients, and subscribers to Urbanation’s quarterly report included Toronto’s top high-rise developers, Canadian schedule A and B banks and secondary lenders, mortgage insurers, municipalities, planners, new home brokerages, appraisers, and suppliers. Ben was widely viewed as the voice of the condominium market in Toronto and made television appearances on CTV, Global, City TV and Rogers TV, as well as being quoted regularly in the Globe and Mail, Toronto Star, National Post and several magazines including Toronto Life, Canadian Business, New Homes and Condos, Homebuilder Magazine and others. Ben has also contributed data to articles and blogs by the New York Times, the Wall Street Journal, Huffington Post, Bloomberg News, Buzz Buzz Home, and New in Homes. Ben has been the keynote speaker for events held by BILD, OHBA, Toronto Construction Association, The Property Show, Canadian Apartment Investment Conference and many more. Ben’s expertise includes residential market studies, condominium apartment feasibility studies, letters of opinion on development scenarios, due diligence reports for high-rise land purchases, focus groups, consumer surveys, data mining and statistical manipulation of real estate related data, macro level economic and housing analysis, and rental demand studies. Ben has also done OMB prep work and assisted with municipal and regional studies on urban boundary expansion, housing incentive programs, and long term residential dwelling forecasts. Ben has a degree in economics from the University of Texas at Arlington and has taken additional courses in urban land economics from the University of British Columbia.

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