Sell, JV, or Develop

A client owned a prime commercial lot in an up-and-coming CBD. He asked me what to do with it. Here's my reply.

Specifically, the client asked whether he should sell, JV, or develop:

a) Sell the property;

b) Enter into a JV (joint venture); or

c) Develop a small (impermanent) structure.

JPRE: (After checking the appreciation based on zonal values) Your property has enjoyed a 27% annual return between 2014 and 2019 (and continuing to increase). The only reasons why you wish to sell are either:

1) you need the money for personal reasons (e.g., retirement);

2) you've found a fantastic opportunity that could beat that return; or

3) you foresee a catastrophic event that would pull prices drastically down.

I can't say much about number 1 since it's personal.

As for number 2, I doubt another investment could yield a 27% return and introduce minimal risk; unless it's another piece of land and you're willing to wait again. The one downside of real estate investing is waiting decades for the market to realize its intrinsic value; you've already done that.

Finally, if you think a catastrophic event will happen (like the Asian Financial Crisis; "AFC"), all asset classes, including cash in the bank, will be affected. For this reason, I believe that real estate is the safest asset available for most PH investors.

What about a JV?

The only reason you'd wish to enter into a JV is either because you need the funds to develop the property or because you need a developer's expertise. These should not apply to you since you have the funds and you've developed buildings. Moreover, JVs are risky. The worst case is that the property gets tied up in legal proceedings and remains idle for decades.

So you're left with option 3. This choice would allow you to minimize the cost of sitting on the property. Choosing this option also does not prohibit you from reverting to the first two options.

Remember: the best thing you could do for your children (and future grandchildren) would be to leave them with assets that generate continuous cash flow. Choose the goose over the golden eggs.