Haddow & Company is an Atlanta-based real estate research and consulting firm. In their third quarter report released this week, they make the point that timing is more important than location when it comes to a development’s success, at least long term.
Below is an excerpt from the Haddow Report that cites an example in the Atlanta area - in my stomping grounds – that illustrates perfectly the importance of timing over location. I’ve witnessed this property’s evolution for 30 years (yikes). It has enjoyed only a marginal success weighing heavily on the good faith of the single bar-crawl crowd (of which I was one for many years - long ago) in its eating and drinking establishments.
The latest reincarnation of The Prado, at the hands of Sembler, a well-respected retail developer, left me scratching my head. It’s a tri-level street scene that is hard to walk unless you are a billy goat. Anchored by Target, Publix and Staples, it sounds like a winner. Target and Staples are sitting pretty but are much unto themselves drawing traffic for just a few storefronts on the top level. They are blessed with easy parking access.
Publix however is configured in such a way to be the most inconvenient grocery store in Atlanta to get in and out of. It is also not convenient to any other part of the retail space. I shopped there once and that was enough. It remains virtually empty at any given time.
The lower level is populated by a mixture of new franchise food vendors, three long-time established eateries that have remained in their former habitat, and a new locally popular Taco Mac.
The demographics of the location obviously drew the big boxes but the site plan is painful to experience. One issue with the location is that it would seem a central and ideal position to capture hoards of traffic. In actuality it lies just to the south of the busy Atlanta perimeter highway, I-285, and is separated from the busier north side of I-285 by a limited bridge that is generally considered a nightmare to be avoided at all costs.
So the seemingly central location is in actuality the periphery bordered by a “no cross” psychological barrier. But even given that hurdle, the timing is by far the biggest enemy for the new development. Started when things were at the pinnacle of the boom, it opened at height of the bust.
This example of the Prado has been played out countless times all over the country, but Atlanta seems to have a special penchant for the boom-bust cycle. We do it very well. We gorge at the real estate feast and inevitably fall hard from over indulgence.
Now I give the floor to Haddow to describe the wild swings of the property value saga for the Prado:
The old real estate maxim, Location Location Location, is so familiar even those outside the industry take it as gospel. It’s time to dispel the myth. Location is certainly a key ingredient of any real estate venture, but a great site does not guarantee success.So many lessons learned so many times over.
Timing is far more important, and deserves at least equal recognition in a true accounting of how to profit from investing in real estate.
The point at which investment or development occurs is crucial in establishing cost basis, while disposition timing can greatly influence sale proceeds. The Prado in Sandy Springs offers a great illustration. This mixed‐use development, built in the early 1970s, was acquired by a real estate investor in 1985 for $14.5 million. A sharp downturn in the real estate market led to the property’s foreclosure and subsequent sale for $4.1 million in December, 1992. The Prado was sold for redevelopment in late 2006 at a price of $23.8 million. This enormous value increase was partly due to the property’s location, but the real cause was a dramatic change in economic and market conditions, as well as the flow of capital.
Just consider what has happened to residential land prices during the current downturn. Properties acquired at the housing market’s peak in 2005 and 2006 have nosedived in value. The locations did not change. Values inflated by easy credit and overzealous expectations are now deflated by the banking crisis, oversupply, and economic slump.
…Real estate is a cyclical business, which highlights the importance of timing. Now is a great opportunity to consider investing because the market is at or near a cyclical low. Wise acquisitions will yield terrific results if disposition decisions are properly timed.
The economy, capital markets, and supply‐demand fundamentals all play a part in determining investment returns. Location is definitely important, but it is mostly about timing.