The Internet's Most Significant Affect On Real Estate Will Be The Future Geography Of Real Estate Investing - Part I

By Allen Cymrot

Will the internet become the catalyst for the emerging commercial importance of America's hamlets, villages, towns and small cities?

During the past 25 years, I have identified and created some important trends within the real estate industry.  My focus has always been to improve investors'information and to increase the investment return from real estate.  Some of these ideas have included:

*    Using the computer to store, retrieve, visualize and communicate investor information. 

*    Designing a national real estate company with a decentralized operating system.

*    Using property management projections with acquisition's information to help determine the real estate's price and terms, or whether to buy the real estate.

*    Maintaining the capitalization ratio as the essential consideration (i.e., more than tax deductions, leverage, fees, etc.)

*    Adjusting the income facet of the capitalization ratio to include market rents on lease rollovers, and the costs of lost rent, tenant improvements and leasing commissions.

*    Creating an evaluation system that weighs and rates a specific property's area, location, structure, amenities, capitalization ratio, debt, leverage and property management.

*    Developing the concept of alternative income to rent.

*    Detailing the future demise of the regional shopping mall as we know it.

*    Analyzing the mistakes of dot-com companys' poor use and abusive costs as their ultimate Achilles' heel.

Some of these ideas are now commonplace operating methodologies, some are evolving, and some are yet to happen.  They are all important and will make a meaningful contribution toward improving an investor's return on their real estate investment.

Yet, the ultimate extinction of regional shopping malls, the collapse of numerous dot-com companies, the introduction of alternative income to rent and so on, are but a small fraction of the ultimate effect that the Internet will have on the real estate industry.  The Internet will redirect the geography of real estate investing in America.

To date most real estate investing in America has been focused on the 50 most populous cities.

As of July 1, 1998 these cities, ranked in order, are: 1. New York, 2. Los Angeles, 3. Chicago, 4. Houston, 5. Philadelphia, 6. San Diego, 7. Phoenix, 8. San Antonio, 9. Dallas, 10. Detroit, 11. San Jose, 12. San Francisco, 13. Indianapolis, 14. Jacksonville, 15. Columbus, 16. Baltimore, 17. El Paso, 18. Memphis, 19 Milwaukee, 20. Boston, 21. Austin, 22. Seattle, 23. Washington, 24. Nashville, 25. Charlotte, 26. Portland, 27. Denver, 28. Cleveland, 29. Fort Worth, 30. Oklahoma City, 31. New Orleans, 32. Tucson, 33. Kansas City, 34. Virginia Beach, 35. Long Beach, 36. Alberquerque, 37. Las Vegas, 38. Sacramento, 39. Atlanta, 40. Fresno, 41. Honolulu, 42. Tulsa, Omaha, 43. Miami, 44. Oakland, 45. Mesa, 46. Minneapolis, 47. Colorado Springs, 48. Pittsburgh, 49. Saint Louis, 50. Cincinnati.

These cities have the best funded business associations and the best funded chambers of commerce, each staffed with talented professionals.  The job of these professionals is to produce propaganda that proves their city is at the center of the universe for all business and living needs.

To that end, and to date, the top 50 cities have received the most recognition and have been the driving forces and geographical magnets to our economy.  Everyone knows their names.  They're referred to as the economic centers.  They've successfully promoted themselves as the business hubs, the places you have to be to succeed, the places you have to be to carry on business, and the centers of the universe for culture and entertainment.

How important to the rest of the country are the 50 most populous cities?  As of July 1, 1998, the country's population was 270,295,240.  At the same time, the total population for the 50 most populous cities was 42,302,313, which represents 15.7% of the population.  That means 227,992,927 people don't live in the 50 most populous cities.

In 1994 the U.S. Census Bureau identified 11,047 other places with 2,500 or more inhabitants (in addition to the 50 most populous cities).  The Internet is about to introduce a wakeup call for those other places.  Because of the Internet, many of those 11,047 communities will be able to compete more successfully against their larger counterparts for goods, services, jobs and investment.  One result of the success of small communities will be that their real estate investment opportunities will become more attractive.

Laptops, PCs, digital cameras, RAM, DVDs, hard disks, scanners, printers, electronic organizers, e-mail, the Internet, etc.  We are watching a technological revolution.  Its imprint on the way we live and work and where we live and work will prove to be bigger than any other revolution, invention or innovation in our country's history.

The technological revolution is changing the way we shop, use healthcare, communicate, get entertainment, travel, work and manage businesses.  These changes are transforming the geographical configuration of our country.

Next month we'll look at precisely how this technological revolution is changing the geography of real estate investing.  Stay tuned.

Cymrot is a nationally-recognized real estate strategist, investor, publisher, and author of Critical Real Estate Issues of the '90s.  He is also a past chairman and director of the National Multi-Housing Council.  For further information call 650-964-7100.