Magnolia Realty Advisors’ CEO, Mitchell Bollinger, has written several articles attempting to quantitatively dispel generally accepted assumptions used by commercial real estate investors. By identifying and refuting the incorrect orthodoxy, Magnolia is able to avoid the investment pitfalls that befall others in the commercial real estate industry.
Employment Growth is not Correlated to Increased Returns for Office Properties
Many in the commercial real estate industry target markets for acquiring properties based up on robust employment growth in the market. This article uses historical job growth data and NCREIF commercial real estate return data to show that there is no correlation between the two. Therefore Magnolia does not use employment growth as a factor in portfolio selection.
Real Estate Investors Believe a 15% Return is Achievable
The majority of investment sales brokers and acquisition teams in commercial real estate believe a 15% return on equity is achievable. By using historical NCREIF data combined with Giliberto-Levy Commercial Mortgage data and REIT data, it can be shown that hitting a 15% equity return is improbable. This analysis highlights how disconnected the industry is from understanding its return characteristics. By understanding the return characteristics of the commercial real estate industry, Magnolia believes it can identify value better than other industry participants.