BFP Management Blog

Archive: November 2015

All Real Estate is Local

November 2015

All Real Estate is Local

We are in the stage of the real estate cycle where frustration begins driving ideas or in other words, desperation becomes the mother of invention.  While I have purchased properties in 3 continents around the world, my home turf is Southern California.

I’ve learned many lessons from watching my competitors over the years.  As California real estate heats up and prices push yields down, everything within a several hour flight looks cheap, particularly Las Vegas and Phoenix (cities within an hour flight away).  In the early and mid 2000’s, I traveled extensively around the western United States looking for that panacea market where I could deploy capital at a better cash on cash return than I could get at home.  When meeting with brokers in these markets, there was almost a giddiness when I said I was from Los Angeles and I was immediately presented many properties which were available to purchase.

On the surface, the deals in Las Vegas, Phoenix, Albuquerque, Salt Lake City, Denver, Austin, etc… looked quite cheap when using metrics like cost per door and cost per square foot.  Thankfully, I’m a numbers wonk and enjoy analyzing new markets ad nausea before risking my capital (which happens prior to ever introducing to investors).  What I found was a completely new set of dynamics which had to be understood to fully grasping the potential of any of these cities.  Furthermore, there were plenty of local investors who knew the market far better than me.


Like in your backyard, there are paths of progress, job drivers, government intervention (positive and negative), new developments coming and local bugaboos which are musts to know when picking your first deal to purchase.  I found the only way to truly get to know the city and its submarkets was to spend time on the ground meeting people, eating in local eateries and walking properties.

I mention this experience because I’m being encouraged to become an explorer like Juan Ponce de Leon who was looking for the Fountain of Youth when he found what is now Florida.  The Fountain of Yield is a better description today and may be out there but when risk adjusted against all factors, it isn’t likely to be as juicy as hoped.

The best opportunities are usually those in which the market cycle is different than your own.  For example, during the mid-2000’s, Austin, Texas and Denver, Colorado were suffering economic downturns because their respective tech industries were hurting.  At the same time, major markets in California were booming.  After much deliberation, I chose to purchase properties in Austin and have done quite well because of it.  Again, the driver for me was a market in economic turmoil which I believed would rebound.  It should be noted that I spent considerable time on the ground in Austin and Denver before deciding to pull the trigger.  As a gauge, I can drive around Austin without my GPS and do just fine.

Another tale of caution is to think, “apartment yield isn’t enticing so I’ll look at another asset class” as the answer to spike investment yield.  Again, during the mid-2000’s, I was growing frustrated and thought “I should look at self-storage investment as that looks better” and quite frankly easier which is the classic grass is greener under someone else’s feet.  One of my close friends who lives on my street has made a lot of money investing in self storage so I asked him if I could come by with a bottle of wine.  He quickly agreed and said he has something he wanted to run by me as well.


When we got together, I asked him about how life was going in his world.  He quickly shared that he was totally frustrated because people were bidding the price up for self storage to a level which didn’t allow for good investments.  I laughed and said that I was thinking about jumping in and he said that he was exchanging money into an apartment building and needed my advice.  My world looked far easier than his.  We enjoyed the wine and realized that our own frustration was making each other’s investment class look better than our own.  Ignorance can be blissful!


While I have invested in office, retail and farm land, it has been few and far between my apartment deals.  I am a believer in staying in your lane and if you want to stray, thoroughly educate yourself.  There are experienced people in all asset classes and markets and I’ve found that if you ask for a call or a meeting, folks are happy to share their thoughts.  People all over the world love to talk about themselves and what they do so take advantage.

During boom times like we are in right now in most parts of the United States, it is natural to look for alternative locations and investments.  If you decide to explore, become a local and educate yourself.


Kyle Kazan

Chief Economist


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