Tuesday, May 8, 2007
Do you bet on real estate or businesses?
I suggest you buy real estate and bet on the business. Will Blockbuster video survive, thrive or dive? It's less important some of the intrinsics such as price per square foot, traffic counts, ingress/egress, than will the business model be here next year. I'm villified for this and I still stand behind my position - Starbucks is a fad. Should you really pay a 5% cap rate for that tenant? Will people tire of coffee or will another vendor do it better in the future? I suggest yes, perhaps on both counts. Then what, Mr. Landlord? Re-tenant a 1,200 square foot coffee shop with a DRIVE-THRU? Point of clarification - I love my grande lattes.