Commercial Real Estate Investing: An Evidence-Based Approach to Risk Management, Strategic Valuation, and Enhanced Returns

The hard, unfiltered truth about the biggest myths and mistakes in real estate investing Commercial Real Estate Investing: An Evidence-Based Approach to Risk Management, Strategic Valuation, and Enhanced Returns is an evidence-based guide and critique of investment practices that teaches investors how to avoid uncompensated risk, improve risk-adjusted returns, and avoid wealth-destroying myths. Each chapter includes an executive summary and numerous exhibits. The book also features interviews with senior real estate industry leaders. The author, Dr. Randall Zisler, legendary advisor to the largest global institutional investors, former Goldman Sachs real estate research director and Princeton University professor, has completed over $6 billion of institutional transactions. Not beholden to any investor or money manager, he is uniquely positioned to speak truth to capital and power; he is completely objective. Topics include: Investment challenges like COVID, inflation, diversification, liquidity, downside, development risk, leverage, underfunded public pension funds, default, obsolescence, and the Winner's Curse The building blocks of real estate, including public and private equity and debt Property types, such as housing, retail, self-storage, industrial warehouses, and office Public policy, including land use controls, rent stabilization, affordability, and sprawl; Risk-based simulations of deals with leverage, limited and general partners and fees Investor checklist of risks and opportunities Sidestepping industry platitudes and abstraction, Commercial Real Estate Investing is a must-read for all real estate professionals as well as novices who seek better decisions with greater confidence while avoiding one-size-fits-all solutions.

Table of Contents:
Acknowledgments vii About the Author xiii PREFACE xvii Part I Introduction to Real Estate and Risk 1 1 Who Should Read This Book, and Why? 3 Q&A: Interview with Danel Neidich, CEO and Founder, Dune Capital Management and former Goldman Sachs Partner 10 2 Statistics, Monte Carlo, Bayes Rule, Stochastic Arithmetic, and Uncertain Attributes 13 Q&A: Interview with Professor Joseph L. Pagliari, Jr., John Mazarakis and Chicago Atlantic Clinical Professor of Real Estate, The University of Chicago 47 Part II The Building Blocks: Public, Private, Equity, and Debt 51 3 What Is Real Estate? Leases, Buildings, and Cities 53 Q&A: Interview with Michael Fascitelli, Chairman, MDF Capital 62 4 The Capital Stack, Optimal Leverage, WACC, and Mortgage Default 65 Q&A: Interview with Michael Giliberto, Co-Creator of the Giliberto-Levy Indexes; formerly senior portfolio manager at J. P. Morgan; and currently serving on corporate and pension fund boards 79 5 The Lease: An Options Approach and Upward-Only Adjusting Leases 81 Q&A: Interview with Doug Lyons, Managing Principal, Pearlmark 99 6 The Real Estate Quadrants: Interdependent and Predictive 101 Q&A: Interview with Ethan Penner, Chairman, MOSAIC 139 7 Property: The Macroeconomics of Performance and Risk 141 Q&A: Interview with Owen Thomas, Chairman and CEO, BXP, Inc. 152 8 Office Property: COVID-19, Obsolescence, Work From Home (WFH), and Conversions 155 Q&A: Interview with John Sischo, Managing Principal, Coretrust Capital Partners, LLC 185 9 Risk Analysis in Practice: Retail, Self-Storage, and Housing 187 Q&A: Interview with Benjamin Shibe Macfarland III, CEO, SROACapital.com, LLC 199 Part III Performance Analysis, Risk, and Popular Myths 201 10 Asset Allocation, with and without Liabilities, and Shortfall Constraints 203 Q&A: Interview with Sonny Kalsi, Co-CEO, BGO 250 11 Optimal Development: Linkage, the Internal Cost of Capital, and Risk 253 Q&A: Interview with Steve Wechsler, President and CEO of National Association of Real Estate Investment Trusts 276 12 Cap Rates and Hidden Information: Avoiding Traps with Caps 279 Q&A: Interview with Steve Rosenberg, Founder and CEO, Greystone 313 13 Liquidity: Turnover, MSA Liquidity, and Investment Horizon 315 Q&A: Interview with Ron Havner, Chairman of Public Storage and Chairman Emeritus of Shurgard 340 14 Is Real Estate an Effective Inflation Hedge? Only in the Long Run 343 Q&A: Interview with Jason Benderly, President, Benderly Economics and former Chief Economist of Goldman Sachs 371 15 A Monte Carlo Model of GP and LP Interests in a Structured Joint Venture 373 Q&A: Interview with Ralph Rosenberg, Chairman of Real Assets, KKR 391 Part IV The Public Sector and Collective Risk 393 16 Public-Sector Risk: Introduction to Sprawl and Rent Control 395 Q&A: Interview with Matthew Zisler, Senior Managing Director, Greystone 401 17 Sprawl: An Options Perspective 403 Q&A: Interview with Daniel Cummings, Managing Director, Bain Capital 410 18 Rent Control Redux: Prediction, Assessment, and Opportunity 413 Q&A: Interview with Aly Worthington, Head of Capital Markets, Summit Development 425 Part V Behavioral Bias, Investment Risk, and An Investor’s Guide 427 19 Cognitive Errors, Picking Winners, and the Risk of Overpaying 429 Q&A: Interview with Susan Stupin, Managing Director, Prescott Holdings, LLC; The Prescott Group, LLC 446 20 Underfunded Public Pension Funds, Risk, and Alternatives 449 Q&A: Interview with Richard F. Burns, Senior Advisor & Trustee, The NHP Foundation 460 21 Investor’s Checklist and Conclusions 463 Q&A: Interview with Russell Platt, Co-Founder and CEO of Forum Partners 469 Notes 471 Index 477

About the Author :
Randall Zisler, Ph.D., Co-Founder of Zisler Capital Associates, LLC, was a Princeton University professor teaching economics and finance. He was real estate research director at Goldman Sachs and Nomura Securities, co-head of investment banking at Jones Lang LaSalle, a partner at Pension Consulting Alliance, and CIO to Merv Griffin.