Page 49 - Trump University Commercial Real Estate 101

Ho w to Read a Market

local imbalances. This is one more reason to stay on top of activities at
the local economic development offi ce.

Obsolescence

It may be possible for cathedrals and other special structures to be just
fine after hundreds of years. However, most commercial properties

have an average useful life, regardless of how well they ’ re cared for.
When they exceed that useful life, their value begins to decline.
For instance, an office building that was built many years ago will

not be wired up for today ’ s Internet needs. That makes it unusable for

many companies. Some buildings can be retrofitted at reasonable
expense, but others cannot.
The same is true with outdated HVAC , or heating/ventilation/air -
conditioning/cooling . Competing properties get built with the latest
energy - saving and comfort amenities, while older buildings either
must charge lower rents or steadily lose occupancy.
There comes a point when owners can ’ t afford the upgrades, but
can ’ t afford to run an empty building, either. They sell at a steep dis-
count to someone who now will own the property at a much lower cost

basis. With some creative financing and rehab work, the new owners
may be able to breathe new life into the property.

Eminent Domain

A city sometimes decides that it needs a large parcel of land for a new
highway, convention center, or other major project. The forced - taking
of a large area can sometimes cause a big change in the supply of a par-
ticular property type.
The same holds true for large areas that are condemned, which
occurred in parts of New Orleans after Hurricane Katrina. Forward -
thinking investors can sometimes anticipate the effects of these sudden
shifts and act quickly, thus either preserving their investments or cre-
ating new opportunities.

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