For Europeans in the 1500s the spice trade routes were fantastically profitable, but also hazardous in the extreme, and not just from the arduous journey in wooden ships on storm thrashed seas. With armed merchant ships from the Netherlands, England, Spain and Portugal traveling to Asia, they literally battled with each other to steal cargo, control port access, and with those high demand goods, control market share and pricing. With the rich potential of of doubling investments in a year’s journey, money flooded into these shipping ventures.
But because an individual merchant could be financially wiped out by losing a huge investment in any single ship, merchant guilds were formed. In these guilds, rather than owning a single ship, a merchant could own a percentage in a group of ships, or an entire fleet of ships, minimizing the risk of total loss and financial ruin for all of the participants.
There was a lot of money to be made, but it was far safer to do so when investing in a way that distributed risk and profits across a broad portfolio, rather than putting all the eggs in a single basket.
Today investing in commercial real estate has the potential of strong capital appreciation, but like with the traders, it carries risk.So commercial real estate investors may benefit from diversifying their portfolio, and taking a share in a number of properties, rather than putting all of their investment into a single development.
Distributing investment distributes risk. Whether natural disaster, highway construction, or some other challenge, a single property can fall victim to negative influences, leaving the concentrated investor in a less attractive position.
Joining with others in a commercial property venture also increases influence. If a single owner holds a property, that owner is a lone voice for zoning or other changes that could impact the property’s value, whereas a consortium of investors can be a chorus of voices and influence for policy making bodies and those whose judgments impact investment performance.
Finally, diversification allows a commercial investor to participate in property value cycles. This year, office space may be in demand, but next year medical arts buildings become the hot commodity. Having investments tied up in a single property limits participation in broad market trends and cycles. The investor may “get lucky”, investing in just a single location that pops quickly, but may need to wait out the market for a growth cycle that takes in that particular investment.
Verity Commercial brings expertise to optimize commercial real estate investment. We have extensive experience and local knowledge to seize opportunities as they present themselves. Our constant, comprehensive commercial real estate market surveillance and our long-standing relationships with key players allow us to uncover promising properties ahead of the competition. Moreover, we have the market knowledge and insights to quickly make high-level assessments and rule out certain prospects that might look good to less-informed investors.
Trust Verity Commercial. Contact us to open a dialogue about your investment strategy and developing opportunities.