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COMBAT INVESTOR
REAL ESTATE INVESTMENT WARFARE GUIDE
By JOHN OHARENKO AuthorHouse
Copyright © 2013 John Oharenko
All rights reserved.
ISBN: 978-1-4918-0306-6
CHAPTER 1
LANDGRABBING: PRIMAL INSTINCT
"He that has lands has quarrels." English saying
Landgrabbing is a primal instinct. As a property owner, you're either content in financially protecting your assets or looking to expand your holdings. You're either prey or predator. You're always on call ... willing, able, and ready for financial war!
Landgrabbing warfare is latent or active. History cycles through periods of tension, threats, combat, and pauses for peace. These are all different states of landgrabbing. If not in the state of combat, an investor is anxious—constantly on the verge of an offensive or defensive move of capturing or protecting territory.
War is explosive but not random. Every fire requires a spark. Unleashed aggression is the fuse; it's dormant if tempered with tolerance. The emotions fueling aggression—greed, power, jealousy, and anger—are the same that ignite real estate investment decisions, only in a commercial context. The warrior and the investor share objectives—the landgrab. To stage a victorious offensive, both require the following:
• Deliberate Action
Control and improvement of land entails a premeditated plan of action.
• Capital
Building weapons, assembling armies, and purchasing property all involve money—either up front or borrowed in the form of war bonds or mortgages.
• Talent/Technology
Gaining the winning advantage requires brainpower and the tool that converts brainpower into action—technology.
• Risk/Reward
Risk and reward are inherent in any venture. A warrior risks life; an investor risks cash. Winning big means risking big.
• Negotiation
A conqueror doesn't have to be noble to partake in negotiations—the conqueror sees it as a means to an end. Invaders force resolution, in conquest as well as in acquisition. A negotiation may be lost, but then the warrior and combat investor will fight another day. Does it have to be this way, or can peace be found? The landgrab is incomplete without filling your war chest.
Even if your pockets are sagging under the weight of dirt (land) and profits, you still have the tendency to reach out and expand your holdings. This territorialism is the essence of filling your war chest. Territorialism can be good or bad, constructive (combat investor's viewpoint) or destructive.
CONSTRUCTIVE LANDGRABS
Some forms of territorial expansion are constructive and seem purely benign, though the combat investor should still view them in the context of a rough-and-tumble market. Some sample positive spins on landgrabbing along with the combat investor's blunt interpretations are as follows:
• Homeownership
* Constructive. We all know that homeownership remains the American Dream. The home is a castle; the owner is a king. After all, who hasn't sat through a dinner party listening to someone bragging about great deals made when buying or selling a home?
* Combat investor. The American Dream requires ammunition (cash) and the willingness to strike (aggression) to get the property you want. This is your first step in the real estate investing game.
• Shopping Center Development
* Constructive. This provides a better shopping experience. Visit some of the new, trendy retailers in a safe and convenient setting with ample parking.
Everyone wants a fun and exciting place to meet, dine, and shop.
* Combat investor. The state-of-the-art shopping center competes with other entertainment and shopping venues for consumer dollars in the area. Generate higher revenues by offering new (or upgraded) facilities. Weaker retailers and older centers will lose market share, but newer centers attract more tenants and shoppers. Simple math.
• High-Rise Apartment Complex
* Constructive. The lack of affordable single-family housing fuels demand for a new multifamily development. The goal is to provide a multitude of pricing options for those choosing a carefree rental lifestyle.
* Combat investor. Multifamily properties are the most desirable investments, offering inflation protection with annual rental increases. Ongoing housing shortages promise growing demand for this product type.
• New Government Office
* Constructive. A public enterprise that serves taxpayers with improved facilities.
* Combat investor. This is a territorial expansion of a governmental body. A new building means more tax dollars appropriated to the agency, its employees, the surrounding area, and local politicians. Agencies must compete with other public and private organizations for survival.
• House of Worship Expansion
* Constructive. Upgraded house of prayer offers the best worship facilities for the congregation.
* Combat investor. Modernized facilities assure survival of the religious organization by updating property. Churches compete with other nonprofit groups for charitable funds. Inspired worshippers are likely to donate more.
Be it profit or nonprofit, the intentions are the same: keep the paying, space-using consumer satisfied while maintaining the competitive territorial growth essential to survival. Such territorial plays become "win-win" scenarios for the giver and user of the premises.
DESTRUCTIVE LANDGRABS
Here's where landgrabbing gets ugly. When territorial gain cannot be voluntarily completed with mutually beneficial transfer of property, landgrabbing is destructive and confrontations erupt. Destructive landgrabs create collateral damage and acts of realty recklessness—deforestation, strip mining, flash dumping, and unchecked urban sprawl.
Negatively-motivated territorial instincts are always at work. Every day somewhere on the planet, dissatisfied people fight over borders, mineral and water rights, arable land, port access, and other real property issues. On the local level, that warfare is seen in property line quarrels, tenant/landlord clashes, and lender/borrower disputes. If disagreements remain unsolved, war is the ultimate solution.
War, or some type of military action, forcibly resolves disputes. Be it a police arrest or private land confiscation by eminent domain, governmental bodies use sanctioned force. Losers suffer financial loss, imprisonment, or worse. Victors grab the real estate. With a series of such continued successes, victors become empire builders—realty investors by default.
EMPIRE BUILDERS
"All empires have been cemented in blood." Edmund burke
Talent drives technology and civilization but also destroys it. Pre-industrial era kings, queens, religious leaders, and warlords wielded the newest weapons and military power to decimate the conquered. Though information technology has rewritten today's rules of engagement; the process of future change is far from stagnant. History repeatedly teaches us how the past shapes future empires. Creative problem solving and applied technologies distinguished victorious combat investors with their empires during each of the following eras:
• Colonization
The bloodiest incarnation of real estate investing involves colonization. Combat investors gain territorial control by grabbing the resources of a weaker society. Spawning national identity, monarchs recruit large armies from mostly agrarian populations. Then, they cultivate battlefield innovation to gain advantage over potential colonies. Territorial growth occurs through armed conflict.
• Industrialization
Improved manufacturing techniques draw workers from fields to higher paying jobs in factories. The combat investor evolves into an industrialist by grabbing resources for manufacturing and controlling distribution. Combat investing becomes a land monopoly play with smokestacks running at full steam.
• Consumerization
To the mall y'all! Realizing that sharing wealth begets more wealth, combat investors expand into consumption-oriented real estate. Larger homes with spacious backyards, enclosed shopping malls, entertainment districts, theme parks, resorts, spas, health clubs, golf courses, and other realty amenities sprawl across the landscape at unprecedented levels. Everyone wants the American Dream. Bigger is better. Combat investor to the rescue!
• Optimization
Trim the fat and find a lifestyle balance. The combat investor shifts gears. It is not the mere size but the quality of space that is most significant. Smaller space is more desirable if the investment is within an infill location serving a more densely populated area. The combat investor's portfolio is aimed at smart real estate—land and buildings with brains. Zero is the hero! Zero footprint. Zero emission.
Whether technology and other changes will lead to more growth or destruction in the coming empires is a delicate question for society and real estate combat investing. In reality, it's a mixture of both, with the hope of a favorable outcome. And any part of such discussions brings in erasing falsehoods and misconceptions about empires.
CRUSHING THE MYTHS
"War is the admission of defeat in the face of conflicting interests."
German Greer
How have empires been built throughout the eras?
Let's explore what empires are all about, eliminating any myths. According to Webster's Revised Unabridged Dictionary (1913 Edition), an empire is "a political unit having an extensive territory or comprising a number of territories or nations and ruled by a single supreme authority." That's real estate investment in a nutshell.
The world's greatest empire builders—Egyptians, Chinese, Greeks, Romans, Byzantines, British, French, and Americans—all developed social and physical infrastructures backed by strong military as well as economic power. These empires vastly expanded territorial holdings through successful warfare-and-plunder campaigns that created great transfers of wealth, fueling further growth and expansion.
Are you wondering about wars fought for noble reasons unrelated to landgrabbing like religion or patriotism? Don't be naive. Not all empire builders labeled themselves as landgrabbers, but all of them ultimately practiced territorial expansion.
All victors do landgrabs. They win, they stay, and they set up shop. Sometimes these uninvited guests share spoils with the cooperative conquered. Even after withdrawing troops, victorious conquerors maintain some form of ongoing, indirect control over the conquered lands. But are these conquerors good guys or bad guys? Fame or shame?
HALL OF FAME OR SHAME?
"Every designer's dirty little secret is that they copy other designers' work. They see work they like, and they imitate it. Rather cheekily, they call this inspiration."
Aaron Russell
Deserving fame or shame (defined diametrically by the victorious and the conquered), the greatest rulers in modern history have permanently transformed the face of real estate investing. Some of the most skilled and prolific combat investors—energy barons, merchandisers, religious leaders, and of course, governments—never perceived real estate as an investment in and of itself but as a tool fueling ambition.
A combat investor need not be a real estate professional per se—in fact, most are entrepreneurs using real estate as the underlying asset. Upon reaching success, they become combat investors by default, using cash flow to spawn territorial expansion, and fiercely packing the war chests. Depending on behavior, investors could be good or bad guys.
Combat investors are not necessarily the inventors or creators of unique products or services. Rather, they convert creative concepts into successful realty-based actions. These opportunists take advantage of territorial expansion through oil fields, dealerships, franchises, religious buildings, or any other real estate type that yields territorial advantage for the cultivation of their activities.
They're not necessarily the first to get the product on the market, but the first ones to capitalize on it. Judging actions individually, these combat investors could be good or bad guys.
The most active, low-profile, and large-scale combat investors are the financial institutions. Such institutions usually invest indirectly, by lending capital to entrepreneurs and corporations. In particular, insurance companies remain active as longer-term real estate investments are well-matched to insurers' cash flow timelines. In boom times, insurers are lenders for real estate; during busts, they become unwilling owners. These conservative institutions maintain low profiles and are difficult to identify as combat investors. Banks, too, are key investors, but such sources of funds are shorter-term, limited to acquisition and development capital.
How are these different types of combat investors trained to be successful? For starters, real estate investing is a broadly-defined field. Originally classified as part of land use economics, real estate investing wasn't recognized as a formal discipline prior to World War II, and therefore, published literature is scant from that era.
Historically speaking, coverage of real estate investing was limited to local publications' stories about successful individuals in the markets. Some national real estate investment formats gained headline notoriety. The gold bonds of the 1920s were probably the first organized effort to promote public investing in realty securities, but these investment vehicles succumbed to the Crash of 1929.
The pre-World War II combat investor legends were trained as American industrialists. Combined with both positive and negative elements, these industrialists built much of the country we know today. Early profit and nonprofit industrialists enjoyed unfettered territorial expansion until the government stepped in to curb it. Examples of these legendary combat investors include: John Rockefeller, who assembled an oil superpower to fuel the industrialization; Henry Ford, who spawned and spread assembly line production; and lesser known, General Robert E. Wood, who transformed Sears Roebuck from a catalog house to a retailing pioneer that reached into every corner of the burgeoning consumer age.
• John D. Rockefeller
"If you want to succeed, you should strike out on new paths, rather than travel the worn paths of accepted success."
The quintessential capitalist and billionaire, Rockefeller channeled his uncanny combat investor abilities into assembling land for oil production, amassing what is the world's largest energy processing empire. The world's largest energy corporations trace their origins to the Rockefeller family. Their petroleum powers nearly every type of transportation form used today including air, land, and sea equipment. Availability of fuel made transportation much faster and more expansive, opening up even outer space options. It made space/time usage of square feet infinitely more efficient.
• Henry Ford
"Nothing is particularly hard if you divide it into small jobs."
Literally fueled by Rockefeller's oil, Henry Ford transformed the real estate investment landscape again by bringing personal freedom of movement to the masses. The mass production of the automobile expanded real estate investing to encompass any road-accessible location. Ford's assembly line also expanded the concept of territorial gain from a cottage industry to a manufacturing process, diversifying into dealerships, which paved the way for future generations of combat investors. The amount of square footage conquered by the automotive industry certainly ranks as one of the greatest land plays in history.
• General Robert E. Wood
"Business is like war in one respect. If its grand strategy is correct, any number of tactical errors can be made and yet the enterprise proves successful."
Though he is probably the least known member of the Combat Investor Hall of Fame, General Robert E. Wood's retail territorial gains on a national and international scale are unparalleled. After military service in Panama early in the twentieth century, Wood transformed Sears Roebuck from a mail-order catalog plant into a powerhouse retailer with stores built at nearly every key commercial intersection in the nation. Wood's most important real estate contribution is the transformation of site selection into a dedicated discipline with market statistics analysis. His methodology became standard for any knowledgeable real estate investor. Since then, many retailers emulated and perfected the strategic planning techniques he used to build his retail empire (for example, Walmart and Target).
Real estate investing evolved into a more formal discipline during the latter half of the twentieth century. Legendary real estate developers Bill Zeckendorf, Trammell Crow, Marshall Bennett, the Bohannons, the Trumps, and Bucksbaums as well as others elevated real estate development into an organized full-time profession. Large-scale combat investing was no longer limited to corporate America or industrial entrepreneurs, as developers with land assemblage and property management expertise started to proliferate nationally.
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Excerpted from COMBAT INVESTOR by JOHN OHARENKO. Copyright © 2013 John Oharenko. Excerpted by permission of AuthorHouse.
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