GlobeSt.com: Why is transparency important in real estate transactions?

Fisher: The velocity of global real estate investment is increasing. Capital in the form of real estate is moving quickly around the world seeking the highest risk adjusted return available. As the investment horizon expands internationally, the investment capital faces potential added risk. The ability to quantify risk leads to more effective real estate investment decisions. The more transparent the marketplace and the individual investment the more accurately the investor is able to quantify the risk and make effective real estate investment decisions.

GlobeSt.com: Are there multiple kinds of risks to consider?

Fisher: Risk in real estate investment can be separated into a number of more specific categories. Economic risk is reflected in the performance of the economy of the specific country and market. As the economy turns downward so does real estate investment performance. Business risk is the potential that the costs to operate the property are higher than anticipated and have a negative impact on the investment. Financial risk is created by using debt as a part of the capital structure of the investment. If the debt investor does not receive the required return, the performance of the investment is threatened. Political risk relates to the political climate of the specific country. A less favorable climate harms real estate investment performance. While these represent a high percentage of the total risk, other factors may limit investment performance.

GlobeSt.com: What is the relationship between risk and technology?

Fisher: In order to properly compensate for risk the investor must first quantify it. Transparency of the real estate investment is a tremendous aid in this task. Transparency is the measure of the availability of accurate data to assess the fundamentals of the market. With accurate data the investor is able to determine supply and demand indicating the feasibility of the investment. The more in depth information available such as demographics from data sources, the more the transparency is enhanced.

GlobeSt.com: Can you explain how potential investors can use technology to reduce risk?

Fisher: One of the major information areas necessary to make effective real estate decisions is the area of market fundamentals. Accurate and accessible information is necessary to determine the feasibility of any real estate investment. As an example, the population of the market is a very important part of this necessary information. Coupled with the population, the income of the market is extremely important. Using this information and good decision making models the investor can determine the feasibility of retail investment. This population information is, of course, dynamic so it is important to be able to easily access current data. As the population and income change, the retail demand changes. If the total supply and demand are near a state of equilibrium, the fundamentals of the market are strong, with low vacancy and rising rents. In a similar manner investors can determine the feasibility of office and industrial investments. If the number of office workers is accurately determined, then the total need for office space can be projected for a specific market. This then can be compared to the supply of space.

GlobeSt.com: Can technology make it easier for global investors to communicate by creating standards and uniform financial measurements?

Fisher: Yes. Take, for instance, cash flow modeling. Creating a common methodology with investment measures enhances the ability of the investor to make sound decisions. While it may be extremely difficult to completely standardize the cash flow model, an executive summary to a global standard would be very useful. This would allow valuation work done in different countries to be easily compared. Many software packages are produced in multiple languages today, which could easily facilitate the attachment of a global standard executive summary.

Instant Insights /

Real Estate Investment Services Corp.'s Joseph Fisher

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