SELL, JV OR DEVELOP?

A client owned a prime commercial lot in a burgeoning central business district and sought my advice on what to do with it. Here's what I told him.

The client was weighing three options:

Sell the property, enter into a joint venture (JV), or Develop a small, impermanent structure.

1.⁠ ⁠Selling the Property

After analyzing the property’s appreciation based on zonal values, I found it had delivered an impressive 27% annual return between 2014 and 2019—and continues to grow. Selling would make sense only under specific circumstances:

a. You need the money for personal reasons, like retirement.

b. You’ve found another investment with better returns and manageable risk.

c. You foresee a major downturn (e.g., a catastrophic event) that could drastically devalue the property.

Let’s break these down:

a. Personal reasons are unique to you, so I won’t weigh in.

b. Finding a comparable investment with minimal risk is unlikely unless it’s another prime real estate asset. The downside of real estate investing is the waiting period, but you’ve already endured that and reaped the benefits.

c. Market downturns, such as an event similar to the Asian Financial Crisis, would affect all asset classes, including cash. Real estate remains one of the safest options for Philippine investors.

2.⁠ ⁠Entering a Joint Venture (JV)

JVs come with significant risks, including potential legal disputes that could render your property idle for years. I wouldn't recommend this solution unless you've done it in the past.

3.⁠ ⁠Developing a Small, Impermanent Structure

This option minimizes the cost of holding the property while keeping your future options open. It allows you to continue benefiting from the property’s appreciation without prematurely committing to selling or a JV.

Final Advice

The greatest legacy you can leave for your children and grandchildren is an asset that generates sustainable cash flow. In this case, keeping the property and opting for a low-cost development is akin to nurturing the goose that lays golden eggs, rather than simply taking the eggs.