Newsum: Real Estate Investors Must Go Back to Basics

WASHINGTON, DC-The ultimate, bottom-line cause of the 2008 crash as Urban Land Institute chairman Jeremy Newsum sees it: making money was too easy. The industry was a playground for financial engineers, and when it was over, a lot of people paid the price. Newsum made his comments at events held at the Urban Land Institute’s annual meeting here this week.

Going forward, the real estate industry--and institutional investors that still seek out these assets--will have to bring the focus back to the actual building. “We must return to a model in which the developer or owner bears the primary responsibility for the property,” Newsum noted.

The investment needs of a fixed life fund, for example, do not necessarily correlate with the lifecycle of a real estate asset, Newsum said. Closed-ended real estate funds, which typically have five-to-10-year terms are inherently unstable, he related--at least from the real estate asset’s perspective. The fund is unconcerned about a timeframe longer than its own investment hold period and thus focuses on wringing out maximum income from the property.

Newsum’s key to a recovered real estate sector is a contrarian one in that he does not particularly wish to see the so-called “money waiting on the sidelines” rush in and snap up languishing properties. Such opportunity funds, he says, should be a sideshow “not the main event,” and certainly not the industry norm for how properties are built and traded.

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