Are You Playing Not to Lose or Playing to Win?
Play not to lose? Who would do that? More people than you may realize. How many times have you heard the excuse, "Our marriage is terrible. I'm not happy. But we've been married for 25 years, so why get a divorce? Only if it could be like it was when we first met." Or, "Sure, when I bought this building it was going to be worth 50% more than what I paid, but since I lost those tenants, I'm negative every month. Not a big deal, the market will turn around and I'll get back to where I was, eventually."
Sound familiar? We play not to lose all the time. It's human nature. (If you'd like more on this topic, check out
Sway, the Irresistible Pull of Irrational Behavior.) I've experienced this phenomenon on numerous occasions, including this morning when I was setting up a bank account with a banker who confessed after making an error in English that it's her third language. I asked her what the others were--Arabic and French. I have a BA in French and all I could mutter was "oui" when she pointed out that my last name was French. I was too afraid to make a mistake by talking to someone that probably spoke French much better than I. Oh well, I missed a great opportunity to improve my language skills, but I didn't make any mistakes.
Playing not to lose costs a lot more than we may believe. Have you ever watched a gambler start out big and then chase his losses to the bottom and beyond? Why doesn't he just walk away after he's 10% down? It makes sense. He could put that 10% back together in no time. Instead, he holds on with the hope that it'll turn around.
Here's the insightful part: we succumb to our will to recover what once was. We're so afraid to lose that we'll spend whatever it takes not to lose, be it time, money, or emotional resources.
How do we overcome this tendency to play to win in today's commercial real estate market?
First, let's start with a few simple questions to find out if you're playing not to lose:
Are you losing money on an investment property believing that things are bound to turn around soon?
Have you ever said that in five years you'll look back and laugh at the paltry losses today because you'll have made so much more by holding on?
Do you look at what your property used to be worth and tell yourself that it will be worth that or more again one day?
If you answered yes to any of these questions, you're probably right. Eventually, it will come back. It just depends on how long you're willing to wait, how much are you're willing to spend, and how bad it hurts before this property becomes a real loss to you?
What if you could pinpoint that turning point, make the decision to take the loss today, and then invest your money in a winning investment? How would it look 5 years from now? Ask yourself, would you be wealthier holding on defending your investment? Or would you be better off letting go, taking your lumps, and reinvesting to win?
Once we see that our behavior of loss avoidance is natural, we can abstract ourselves from it and realize that if we play not to lose, we really don't win, or maybe just not lose that bad--unless we keep chasing losses.
Get objective. Take a look at where you're heading. Is it the direction that leads to greater fortune or loss?
Here's what I'm going to do. The next time I'm in the bank, I'll speak French with the banker because making mistakes now would be much less costly than never practicing my second language and becoming a better communicator for my next trip to Paris.
About the Author:Jeremy Cyrier, CCIM is a principal with MANSARD Commercial Properties and member of the CCIM Institute faculty. He offers advisory services and brokerage expertise to commercial real estate owners and tenants. You may reach Jeremy at Jeremy@Mansardcre.com.
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5 years of national office leasing data suggest that Energy Star Certified properties are leasing for significantly higher rents. In 2004, national office rates for non-Energy Star properties was $24/SF. Energy Star Certified Properties were leasing for $2/SF more than their peers. On a 100,000 SF building, that differential on a 8.5 CAP rate equates to roughly $2.3M in equity.
2009 data are even more compelling. That same Energy Star Certified 100,000 SF building is leasing for $4.75/SF more than its peer today. That differential on a 8.5 CAP rate equates to roughly $5.9M.
Here's the good news: a preliminary Energy Star study costs about $3,000.
So long as demand for these properties outstrips supply, these trends should continue. They won't, however, last forever as more investors catch on to this new information.
About the Author:Jeremy Cyrier, CCIM is a principal with MANSARD Commercial Properties and member of the CCIM Institute faculty. He offers advisory services and brokerage expertise to commercial real estate owners and tenants. You may reach Jeremy at Jeremy@Mansardcre.com.
Sign up for free CREFrontline updates, if you haven’t already. It's free and has absolutely no obligations.
