Publications

- June 1, 2019: Vol. 31, Number 6

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Investors face obsolescence risk in a changing world

by Loretta Clodfelter

One of the main risk factors for commercial real estate is obsolescence, according to Bryan Sanchez, CIO of Lionstone Investments, along with the end of the real estate cycle and high prices for all asset types. Of the three, though, obsolescence risk is “the issue that gives us most concern,” Sanchez says.

“Above all things, what we want to avoid is buying obsolete properties at high prices,” adds Sanchez.

Obsolescence risk is especially acute at this time, as the world is changing rapidly and what people need from real estate is also changing rapidly. Real estate investors need to be adept at steering around obsolescence.

Building obsolescence generally falls into one of three categories — locational, physical and user experience. Sanchez explains that user experience is “more nebulous” than the other two categories, but that the way people want to use buildings is changing.

“We really are thinking about real estate as a service,” says

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