You are unlikely to have heard of the word “arbitrary owner”, but it is actually used more and more commonly in the world of commercial real estate. To understand what it is and how it relates to real estate ownership, let us first look at the definition of arbitrary.
Subject to individual will or judgement without restriction; contingent solely upon one’s discretion.
It can also mean that it is based on personal whim and random choices, instead of being based on systems and reason. Some people also think arbitrary is autocratic in nature, because you use your own authority in an unrestrained manner. Indeed, it is synonymous with unpredictability, chance, randomness, whimsicality, and capriciousness.
How “Arbitrary” Is Applied to Commercial Real Estate
So how does this apply to commercial real estate? Well, it seems that a lot of real estate owners are actually very arbitrary. So much so, in fact, that experts have come together to finish the sentence “you are an arbitrary owner of commercial real estate if…”, and they have come up with some very interesting phrases to to end such a sentence. In fact, you may find yourself surprised to learn that you are, yourself, an arbitrary owner, and that the property you own in Rossmoor or any other part of Orange County was not purchased in an as well thought of manner as you had believed.
You Are an Arbitrary Owner of Commercial Real Estate If…
1. You price your building much higher than the value that recent trends would suggest. If you decide not to use the Gross Rent Multiplier (GRM) or other accepted strategy, then you may be acting like an arbitrary owner.
The Gross Rent Multiplier (GRM) is a capitalization method used for calculating the approximate value of an income producing commercial property based on the property’s gross rental income. While it sounds a little tricky, it really is quite easy as long as you have access to some basic information.
2. You take what your advisers say as gospel news, never questioning anything that say.
3. You receive an offer for a lease rate that is at least 30% above the latest one, yet you counter by charging a rate higher than that.
4. You believe that lowering prices is easy but raising them is impossible.
5. You find your deals over a cocktail or alcoholic drink in a late night bar.
6. You think that office space is office space, regardless of its location. They don’t say location, location, location for nothing!
While location isn’t everything, it can make a huge difference in making your company seem more professional and welcoming as well as more efficient.
An office space on a ground floor, with great views of a river and ample parking spaces, is obviously going to be worth more than an office space in a dark building on the third floor, without any permissions.
7. You don’t stay up to date with the importance of having a strong digital presence.
8. You immediately dismiss any offers lower than your asking price, believing that the problem lies with the prospective buyer and not with you or your property.
The above eight things may seem a little extreme, and they are. However, watered down versions exist across the board, and you may recognize yourself in some of them. What this means is that you are making arbitrary decisions, often in multiple directions. Firstly, you believe that, as the property owner, you get to make all the decisions, regardless of what the market is saying. Secondly, you make those decisions based on your feelings and emotions, rather than on actual facts, strategies, and common sense.