Rich Warnick?s fictionary of real estate investment terms
After my last blog was posted, Jerry Daly of Daly Gray (our PR firm) sent me a note that included this observation: ?Your commentary tends to have a negative undertone. I don?t think you want to spend the entire time being a Negative Nelly. At some point, you might want to make some positive comments. Not ‘everything?s coming up roses,’ but not everything?s going to hell, either.?
Jerry is right on both counts: I have had a generally negative bias in my writings of late ? and things are not all bad. So, here is my attempt to look at the brighter side ? or, should I say lighter side. Enjoy my “fictionary” of real estate investment terms:
Agressosauraus: A form of investor who became extinct by overpaying for real estate investments.
Bozone Layer: The atmosphere surrounding decision makers that renders them impervious to opinions other than their own.
Capitallies: Exaggerations some fund sponsors tell investors to raise money.
Cashtration: The process by which investors become financially impotent by over extending themselves.
Cramortization: Principal repayment calculations based on less than 20 years.
Crash Flow: The low level of net operating income generated by commercial real estate during a recession.
Debt Service Coverage Fellatio: A calculation that blows most borrowers? chances of getting a loan.
Dew Diligence: A deal analysis process in which the conclusions are all wet.
Financial Projacktions: Hyped up pro formas used to justify an acquisition or development deal.
Financial Asslumptions: The forward-looking conditions that an appraiser uses to justify continuing low property values at the end of a down cycle.
Forepay: The fees, points and other costs one must pay before being screwed by a lender.
Hogtried: The attempt by a negotiator to wring every last bit of benefit from those on the other side of a deal.
Hotel Manglement Contract: A hotel operating agreement that materially and adversely affects an owner?s ability to maximize value on sale.
Hurl Rate: That level of return on investment below which you want to throw up.
Illusionary Value: An assumed value calculation at the end of a hold period derived by using unrealistically low cap rates.
Infernal Rate of Return: The level of return that disciplined investors need to justify an acquisition, but cannot reach due to rational underwriting.
Loan Supplication: The process a borrower must go through in order to obtain debt for hotels in down markets.
Moan Proceeds: The amount of debt a real estate project can support in a down market based on trailing-12 month net operating income.
Negotiatrader: A buyer whose standard modus operandi is re-trading every deal they tie up.
Net Shale Proceeds: The rock-bottom amount that a seller is able to pocket in a down market.
Opporlunacy Fund: A private equity fund that uses insanely optimistic assumptions to justify investing in real estate assets.
Portfolio Diworsification: The futile search for risk mitigation by investing in multiple forms of real estate in many different geographic areas.
Pricetitute: A consultant who will tell a client whatever they want to hear to earn a fee.
Real Estate Investment Bust (R.E.I.B.): An investment fund that failed by paying too much for hotel assets because the fund?s cost of capital was very low at the time of the acquisitions. [Also see, agressaurous]
Real Estate Stroker:An intermediary who manipulates clients for the sake of getting a deal done.
Real Estate Transaxetion: A sale in which the price was materially reduced from contract to closing.
Ream of Consciousness:A planned and purposeful renegotiation of a deal with a vulnerable party.
Yechonomic Forecast: An expert prediction of future market performance that is so bad that it induces a gag reflex.
On a more serious note, I read something recently that appropriately expresses why we all need to guard against the currents that can overwhelm rationality at the extreme ends of a cycle. As a reminder that we need to temper our pessimism (or enthusiasm at the other extreme), I thought I would share this brief commentary from The Week with you in its entirety:
?Copies of Dow 36,000 go for a buck from Internet booksellers ? not that there are necessarily takers. The Dow ended 1999, when the book was published, well above 11,000. Today, 11 years later, investors would cheer to see that height reclaimed. Dow 36,000 quickly evolved from startling prediction to silly punch line. But lately I?ve wondered if the delusional faith in ever-rising financial markets that the book came to symbolize may have given way to a similarly ill-founded pessimism.
“The Great Recession has taken a brutal toll on American confidence in all its guises ? investor, consumer, citizen, voter. The business press is laced with gloom, including reports of investment funds designed to exploit catastrophe. NYU economist Nouriel Roubini, who famously predicted the financial crash, has been raising alarms about the potential for a ?double-dip? recession; his anxiety-inducing analysis is said to be much in demand among business clients. Historian Niall Ferguson is also making the consulting rounds. His darker pitch sees and raises Roubini, blowing past double dips to wholesale imperial collapse, with the United States (and its $14 trillion economy) cast in the hapless role of the Soviet Union circa 1989, or Rome in its penultimate days. I?m no economist, but it was Warren Buffet who said, ?Be fearful when others are greedy, and be greedy when others are fearful.? With that in mind, I?m looking for the sunny side of markets. But I?ll also keep a watchful eye on the used-book biz. If a bout of irrational exuberance drives up the price of Dow 36,000 to a buck fifty, I?m cashing out.? — Francis Wilkinson, executive editor of The Week.
I think Jerry Daly would agree.