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Greed and Fear in the Phoenix Real Estate Market

Market Trends & Analysis Industrial Office

“Be fearful when others are greedy and greedy when others are fearful.”  - Warren Buffet 

Look no further than the words and wisdom of Mr. Buffet to get a clasp on what happened and is happening in the Phoenix owner/user real estate market.

To fully grasp the magnitude of this quote, as well the application to today’s owner/user real estate market in Phoenix, we must understand that this market just navigated through more than five years of paying for its excessive greed. Poor commercial lending/borrowing fundamentals and oversight played major roles in this recent recession. States where this greed went unchecked like Arizona, Florida, and Nevada are just beginning to thaw out from the devastation that we put ourselves in with these poor fundamentals.

Seven years ago Phoenix was a market that would criticize under-leveraging as an uncalculated business practice. Real estate prices were soaring and those who thought the train would ride forever built and erected shiny new buildings for themselves with little down and eventual refinancing (cash and carry) as the goal.

Few business owners chose to remain in their current facilities, displaying in retrospect, savvy business acumen. Few had the perspective to remain disciplined and continued to make due in their current facilities. Even some of those businesses that were guarded and conservative were barely able to survive this recent recession themselves!

Looking back from today, did many of these owner/users that built or erected new facilities really need a new building in the suburbs that cost three times the price of their then functional facility? Many business owners could not escape the lure of great appreciation that real estate could provide while the market was on fire. Of those that built with aspirations of appreciation and eventual retirement, many have lost their buildings, their business and more. Their structures have been sold at fractions of what it cost to erect and their bank accounts, business and in some cases family have been lost.

Today the Phoenix owner/user market is rife with anxiety, and a fear of the unknown. Active owner/users here in Phoenix have been through the worst (we believe). They are just beginning to see their way out of the lean times as it appears the market is beginning to improve. Yet with this early emergence of the user market (which runs in proportion to the improving housing industry) we still continue to experience tremendous anxiety. Fear does remain. Who can blame these business owners for reluctance? If any have seen what we have seen in our routine business to business cold calling these last several years, one would be hesitant as well.

We here in the Cassidy Turley owner/user specialty group have been active with owner/users that now need to obtain larger facilities. As opposed to 2006, the fundamentals today for making an informed business/real estate decision in the owner/user market are more stable. The low cost of money, real estate appreciation, and tax benefits all can contribute to long term success of the financially sound growing business today in Phoenix.

Now that we have painted the picture, what is our advice? Let’s listen to the wisdom of Mr. Buffet’s words. Let’s consider a sound businessman’s advice. The effect that uncertainty and anxiety has on the current owner user market make this a logical, practical and progressive time for a well-funded owner/user in Phoenix, Arizona to entertain any real estate purchase or lease. Building prices are as low as they will be in the next decade. Current pricing, along with the well-recorded nature of this market to boom after a bust, present an opportune time for an owner/user to consider investing in real estate in Phoenix today. Business owners and users are now beginning to consider upgrading the size and improving the function of their facilities, yet the recent years lessons loom large and are the cause of much anxiety.

We believe a decade of appreciation looms. Now is a fine time to strategically place your business on a path of growth for the next decade, to contribute to your business’s future wealth by taking advantage of the current fear in the marketplace.
Yes, now is the time to take action and become active in the Phoenix Real estate market f you are an owner/user!

Louis G. Finocchiaro, SIOR

Louis G. Finocchiaro, SIOR

Vice President for Cassidy Turley Commercial Real Estate Services in Phoenix, Arizona, specializes in industrial owner/user sales/leasing and land sales throughout the Phoenix marketplace. He brings 18 years of completed transactions and negotiation experience to his clients.