It's often said that real estate value is all about "location, location, location." In other words, if you know where the property is located, you know the most important thing about it. In reality, this is never entirely true, especially in a down market. My suggested replacement is "location, timing and luck." Of course, location is always important when estimating value and arguably even more so in a down economy. If you can rent or buy a class A location in bad times for less than a class B location in good times, why wouldn't you? The same folks who are driven away from prime locations at the top of the market flock back when those locations become affordable again. And, as a corollary, the less-than-prime locations suffer even more in a bad economy as tenants and investors flee toward quality.

As we all search for signs that the economy is improving, our attention is drawn to the small number of transactions that indicate that prices might be rising. And where are they? So far it appears that trophy properties in coastal or gateway cities have attracted investor interest, particularly from overseas buyers. Office buildings located in prime locations in Washington, DC (1999 K Street NW), New York City (340 Madison Ave.), and San Francisco (333 Bush) have recently sold for prices that are clearly above the levels of distressed sales, not as high as they might have been at the peak of the market two years ago, but still respectable. So, location still deserves a place among key valuation drivers. But it's not the only one.

Timing is another major consideration. Everyone has at least one great example of an investment that worked wonderfully for one investor but was disastrous for another. Often it's the first mover who suffers the disaster because the investment or development is ahead of its time. Not the wrong location. Not the wrong type of property. Just the wrong time. Consequently, many investors are now focused on timing more than any other aspect of the equation.

Finally, while it is common to talk about econometric models and financial whizzes who invariably choose to invest in the right location at the right time, it is important to recognize that sheer luck plays an important role in the success or failure of any real estate investment.

Clearly, there is a distinction between the well-informed investor who acquires a property knowing that a new exit ramp from the Interstate is likely to be approved in that location and the clueless individual who has the dumb luck to own property in the same location, having inherited it from his Aunt Susie. Attributing success to good luck without knowing the facts is not always accurate.

Some events are more predictable than others. The ability to foresee likely future events is not good luck, it is a great talent. It would be similar to equating the financial damage caused by a massive tornado to the financial crisis of the last two years. One could argue that the investment bubble that preceded the real estate decline of 2008 and 2009 was discernable and that over-leveraging a property acquired at a historic market high point had the potential to generate unfortunate results. On the other hand, acquiring a property a month before a storm that causes catastrophic damage really is bad luck.

Timing and luck are frequently interrelated. Often, the lucky (or unlucky) circumstance is merely the result of some unforeseeable occurrence soon after an investment is made. The good luck, of course, is then perceived as business acumen while the bad luck is just seen as bad luck, not poor judgment.To get valuations approximately right in this environment is about as much as can be expected. While location is important, do not overlook either timing or luck when evaluating the comps that are available and assessing exactly how comparable they really are.

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