The physics of real estate investing

February 12, 2014 admin

A number of years ago, physicists discovered something remarkable while researching the nature of reality — that the very act of observing sub-atomic particles changed their behavior.

In other words, to observe reality is to change it.

Prior to that, physicists discovered that light sometimes acts as a particle and other times as a wave. Physics experiments recently conducted in Israel showed that two photons that don’t even exist at the same time can be “entangled.”

Yes, what we call “reality” is an ever-shifting and inscrutable kaleidoscope of dynamic forces.

Now vastly scale up from the impossibly minute to the massively large, to the dimension occupied by human beings and the edifices we build and invest in. Look around. Think for a minute. Do your life experiences even begin to lead you to the conclusion that an objective “reality” exists? How often have you discussed politics, religion, culture, music — or real estate — with another person and not walked away thinking (on some level) that you just communicated with someone who is living in a completely different “reality” than you?

But then, we in the real estate business have hard data, don’t we? The kind of data — such as demographic trends and inflation rates — upon which our real estate investments are predicated. Would anybody dare argue that the population isn’t aging in Italy or Japan? Or that developing nations aren’t urbanizing? Probably not. But that doesn’t mean that when we, as real estate investors, act on that information we are not ever-so-slightly changing that very painstakingly measured “reality,” much as physicists discovered to be the case on an infinitely smaller scale.

Now multiply those data-based actions times millions of decisions and billions of dollars. Who is to say that our acting upon the trends we have measured are not actually altering those trends — perhaps to very significant degrees? Maybe that is why trends inevitably change, and sometimes with greater rapidity than we would have imagined, let alone forecasted.

If “reality” is so malleable on a sub-atomic scale, why wouldn’t it be equally or perhaps more malleable when scaled massively larger? Maybe that is why so many carefully researched thematic real estate investment paradigms go so terribly wrong.

I’m not insisting; I’m just suggesting that whatever semblance of objective “reality” might actually exist is as malleable and elusive as mercury.

But who am I to say? I obviously live in a very different reality than you.

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MikeCfinalwebMike Consol is editor of The Institutional Real Estate Letter – Americas.

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