What other types of macroeconomic variables might a potential investor use to evaluate the success of a downtown Los Angeles real estate development, such as the example above?
In addition to favorable loan interest rates, potential investors may be interested to know some interesting market and demographic facts about this real estate investment. Almost 77% of the population is above age 18, and thereby eligible to rent. Los Angeles is the second-largest center of government employment (after Washington, D.C.); the largest fashion industry employer (employing 87,000 people); home to a burgeoning biotech industry; and the second-largest city in the United States. More than 40 million tourists visit each year, supporting nearly 372,000 people employed in the tourism and hospitality industries. Also, the five-county regional area represents the sixteenth largest economy in the world, and plenty of college students need to rent in the area, given 113 colleges and universities in Los Angeles.
What are some downsides to investing in commercial real estate, especially urban development projects?
According to experts at The Wall Street Journal, there are downsides to commercial urban real estate investment transferable to many areas of real estate investing, including an over supply of housing; office or retail space; slow velocity of growth of rental demand for any systemic reason; increasing building costs; and a general trend toward increasing real estate prices.
Why do commercial real estate deals often fail?
Commercial real estate deals may fail for several reasons, including: lack of proper analysis; overpaying for the property; cash flow/income problems; large macroeconomic events that affect the ability to rent and/or sell the property; and making incorrect assumptions or overstating positive assumptions when computing potential return models.