I once had a conversation with a coworker in which I expressed my frustration regarding the siloed view of real estate that many real estate professionals seem to employ as a matter of course. I complained that so few real estate professionals truly attempted to view real estate as a multifaceted asset and instead cared only to focus on their specialization within the industry. I wondered out loud how productive the industry could truly be if, in addition to their own professional perspectives, appraisers attempted to see the industry a little more like attorneys and attorneys tried to orient themselves to view the market like investors and investors like Relators, etc.
My coworker listened politely until I was finished and wisely stated that the reason such cross-pollination of perspectives was not present in the real estate industry was that everyone was too “in the weeds” in their various roles and on their various projects to even attempt to take such a view. It was at that moment that I realized that I realized that my coworker had accurately described a condition that plagues much of the real estate industry—myopia. Indeed, many real estate professionals become so great at their specialization that cannot see the forest for trees or better yet, the weeds.
Myopia Can Lead To Opportunity
The real estate industry’s myopia, however, can in fact be the source of great opportunity. A holistic view of real estate assets, informed by the various perspectives of the multitude of professions that service the industry, can not only lead to wiser professional decisions regarding real estate, but also to increased productivity and more sustainable profitability for both real estate assets and services. For example, a property manager that is aware of some of the legal aspects of property ownership, such as premises liability or best hiring practices, while also being aware of real estate sales best practices will be better equipped to manage a building to avoid common legal pitfalls, which will ultimately allow for less complications when it is time to market and sell the property or prepare it for financing.
In order to develop such a well-rounded view of real estate, however, it is important to understand the interplay of each real estate profession with the industry as a whole. At its core, all real estate is based on legal relationships between parties and properties. These legal relationships, be they ownership or leasehold, are the foundation of real estate markets. Emanating from these relationships is an entire industry with a myriad of professions, each of which is essential for the real estate market to function.
The Lay of the Land
At the most fundamental level, the preservation and enforcement of real estate rights requires a framework of various legal and governmental professionals, including attorneys, judges, governmental clerks, etc. The transfer of property, additionally requires professionals to facilitate the sale or transfer of the property and determine its value. Once ownership has been established, the property must be developed and/or managed, requiring the expertise of the management and construction industries. At some point, the property will have certain legal and financial reporting requirements requiring the expertise of accountants and more legal professionals. This process will continue until it is time to sell or transfer once again and then the cycle repeats.
The world of real estate finance, although one level of abstraction removed from the daily functions of property, contains a myriad of professions facilitating its functions. Monetizing the legal relationships that undergird the real estate market requires an intimate knowledge of each property financed, giving rise to the real estate underwriting industry. In addition to the underwriting aspect of real estate finance, lenders' interests in property must also be secured through a mortgage, note, lien, contract or entity documents. Such documents are typically drafted, reviewed and recorded by yet another set of real estate professionals.
In order to create more capital to lend, mortgages themselves are aggregated and either sold on the secondary market or securitized, requiring a different set of financial professionals. Securitization leads to the issuance of bonds, which must be sold, underwritten and valued. These bonds are sometimes resold on bond secondary markets, all of which is handled by bankers or other capital market professionals.
Further strengthening the performance of the property and real estate finance markets are the related insurance markets, which range from various liability insurances on the property level to mono-lines and derivatives to ensure the performance of real estate securities. Derivatives are also used to facilitate the issuance of real estate securities. Each of these various types of insurances are provided by a number of professionals, who are more appropriately called insurance professionals than they are real estate professionals.
In addition to all of that which has been mentioned, there are also the industries that support the real estate professionals, such as real estate technology companies and real estate document services.
Certainly Worth the Effort
Taking into consideration the various sectors of the real estate industry, a highly functioning professional should endeavor to understand as much as possible about the various real estate professions that play a significant role in the real estate market, as doing so will allow for a more informed professional practice. Exploring the various professional roles of the real estate industry requires a willingness to learn about other professions and certain level of self-examination regarding the limitations of one’s professional perspective on real estate. The robust view of the interrelated real estate market that results from such reflection, however, is worth the effort, as such a multifaceted view can find solutions where others see problems and make challenging transactions more profitable.
The next time that you face a real estate challenge, try to view it from another perspective. You never know the opportunity that may present itself as a result.
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