Idle thoughts on RE valuation:

r/delusionalcraigslist is a subreddit for absurd Craigslist ads. A common occurrence there is for someone to share an ad for an item they think is insanely priced, and then for others to explain why it’s actually not a bad deal at all. 1/

This sawn-in-half car that looks like scrap is actually a rich source of original parts to an experienced restorer of classic Chevys.

Great example of a valuation trap that is omnipresent in real estate. 2/

RE is valued on its highest and best use, but that use is often unknowable, or getting to that use is impossible. For example: you may have a warehouse that would add a ton of value to one specific user - it would be a no-brainer - but he just signed another lease. 3/

Or maybe you are a programmatic investor that does the same deal over and over again, so you overweight your comfort with executing your usual strategy and underweight the upside (or overweight the downside) of doing something different, and leave money on the table. 4/

The flip side is that if you don’t have a ton of expertise in a sector, you can win deals (and in turn set the valuation mark) by underwriting whatever use pays the highest rent, and then fail to execute. This has been the story of coworking for many sponsors. 5/

Basically, the essence of valuation isn’t market consensus (although that’s good to know if you’re thinking of selling) or what the appraiser says (although that’s useful for sizing a loan) - it’s about the value *you* can (or can’t, or won’t) extract. 6/

Some of that is within your control, some of it is not.

But ‘what is it worth’ is a question for amateurs. ‘What is it worth to me?’ is a question that really good real estate owners and operators ask. I’m trying to ask it more... 7/7

Also, @PinkPoloShorts linked to Macklowe's 'development stories' a few days ago - these are great examples of this variant perception/valuation concept. Very inspiring. 8/7

https://www.mackloweproperties.com/past-projects.html