As a key strategic resource, business real estate is the largest or second-largest

asset on most company balance sheets. But it often receives less attention than it

deserves in the boardroom. Real estate is a complex issue that involves balancing

the needs of customers, employees, investors, regulators and neighbors. It’s easy to

lose sight of the big picture and end up with suboptimal locations, layouts and

investments. But there are five essential maxims that can help senior management

meet this challenge.

The definition of real estate includes land and any permanent human constructions

that attach to it, as well as the ownership and usage rights associated with those

structures. This includes single-family homes and multifamily dwellings, office

buildings and shopping malls. It also encompasses agricultural land and natural

resources like trees, water and minerals. Real estate can be privately owned or held

by governments and public organizations, or it may be leased for use by others. The

industry that supports real estate activity is enormous, involving brokers, agents,

appraisers, attorneys and financiers who play important roles in the buying and

selling of properties. Also read

A property’s location is fundamentally important to its value. Real estate that is

situated in a high-growth area, close to transportation facilities and with access to

schools, parks and open spaces will generally appreciate faster than land in other

parts of the city. A building’s interior layout is another critical factor in its value, as

are the number and quality of nearby competitors and suppliers.

Investing in real estate can be a great way to make money. Real estate investment

trusts (REITs) and private equity funds are two popular forms of investing in the

industry. However, it is important to understand that a REIT’s stock price will

fluctuate with the overall performance of the market and that an individual investor

can lose money in the real estate sector.

The economy’s cyclical nature can have a significant impact on the value of real

estate, especially in commercial markets such as office buildings and hotels. In

general, when economic conditions are weak, demand for these types of assets

declines and their values drop accordingly. Moreover, the underlying capital

invested in such assets represents a large fixed expense that cannot be quickly

undone or replaced when conditions turn sour. This makes these assets more

sensitive to changes in the economy than, for example, retail and manufacturing

assets. This makes it imperative that real estate managers closely monitor the

economy’s cyclical tendencies.