In our business the main topic of concern is risk – more specifically, commercial real estate private placement offering investment market risk. Market risk goes way beyond the risk associated with the public securities market. Indeed, one of the key drivers of that particular risk is the risk of investment loss due to a fundamental change in the purchasing preferences of consumers. Setting aside fads, changes in purchasing preferences are almost exclusively from advances in technology that are the byproduct of a healthy market economy. Someone sees an opportunity to serve the market with a new invention or convenience that solves a problem or serves a need.
This healthy economy, like Mother Nature, constantly creates winners and losers. Technology advances make other income-producing business assets suffer revenue losses that are due to their assets becoming comparatively obsolete. This shift gets larger and eventually disrupts the market or specific industry. At that point, the losses are hard to avoid, so the trick is getting advance warning.
Commercial real estate properties generate earnings over extended periods of time, so they are very vulnerable to market risk and market disruptions that cause asset obsolesence. Market risk cannot be avoided, only managed for profit or prevention of loss, just like businesses, markets, people and maybe Mother Nature someday.