The macroeconomic environment in commercial real estate has been good for a long time. In this video, MetaProp Co-Founder and Partner, Zach Aarons explains why this trend will not last forever and why now is the right time to look at the cost side of your P&L.
Good afternoon ladies and gentlemen. My name is Zach Aarons, Co-founder and Partner of MetaProp NYC.
I’m here today to tell you about one of our most exciting investments, a company called Enertiv.
But before I go into what Enertiv does and their super special sauce, let me take a step back and talk a little about macroeconomic conditions.
The year is 2018. We have been, for the past 8 years, experiencing one of the longest and strongest bull markets in our nation’s history.
The real estate picture has never been rosier. Rents are at all-time highs. Cap rates at almost all-time lows.
But my mother once told me, all good things must someday come to an end. And by end, we mean this cliff here.
So, what’s going to happen to make this picture start looking a little less rosy? Well, the fed is starting to tighten, and interest rates are going up.
What does that mean for the real estate community? It means they have to pay more to service their debt. Typically, this means profits are going to go down and credit is going to tighten, which means fewer deals in the marketplace.
What else is going on? Well, when interest rates go up, typically cap rates go up. Cap rate expansion is a major problem for real estate owners and operators. It means that the real estate they owned yesterday is suddenly less valuable today. Just because of macroeconomic conditions.
What else is going on? Well, supply seems to be finally outstripping demand. That means competition is going up. Another factor is newfangled real estate companies that operate under a different paradigm. Whether that’s co-working or co-living, they’re fundamentally looking to disrupt the traditional real estate operator’s core business.
So, what do we do about it? What do you do about it as an owner/operator of real estate?
Well, one thing you can do is getting a much better handle on the expenses in your P&L. How do you do that you might ask?
You can do it by investing in a product like Enertiv. Now what does Enertiv do? Well, it takes these two items, utilities and maintenance, which are the largest expenses on your P&L that are fundamentally within your control, and it shrinks them.
How much does it shrink them? Well, funny you should ask. Unlike some of its competitors which promise 5% reductions in these expenses, Enertiv’s solution gets you 10-20% savings.
To put that in perspective, that’s essentially like taking your vacancy and reducing it by 3 percentage points. These are massive savings, which drop all the way down to the bottom line.
Now I’ve been pitched a lot of products in the past that say well, you invest a lot of money upfront and eventually you’ll get paid back.
“Well how long does it take?” I say to those people. They say, “well, it could take six years, could take seven years, I’m not really sure”.
Well guess what, I don’t have six years, I don’t have seven years. I’m either going to be out of business in six or seven years or I’m going to be on a beach in the tropics. I need results right now. And which company can bring those results to me in a one-year payback period?
You guessed it. Enertiv.
So, in conclusion my friends, times are good. But they won’t be good forever, we’re approaching this scary cliff here.
How do we soften this cliff a little bit? You can soften it by adopting Enertiv and saving 10-20% on your most important expense categories: utilities and maintenance.
And as an added bonus beyond saving all this money and getting this great payback, your tenants will love it because they will be more comfortable and happier in your buildings.
I’m Zach Aarons of MetaProp and I approve this message.
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