It’s not possible to patrol the commercial RE beat online without finding Coy Davidson. A Senior VP at Colliers with twenty years in the business, Coy writes The Tenant Advisor, one of the better blogs dedicated to commercial property markets with a focus on corporate real estate and tenant representation and office solutions.
His recent post is titled Know Your Numbers. And when he says “know”, he’s not kidding. His advice to agents is to embrace the math in the financial analysis spreadsheets by learning it away from spreadsheets — old-school — to the benefit of everybody at the table. He writes:
Today, computer software makes it easy to crunch the numbers and produce impressive looking reports. However, I am often surprised at how many agents even with a few years experience lack the financial expertise to speak the CFO’s language and effectively advise their clients.
I learned the economics of a lease transaction with a financial calculator and a legal pad and I think young brokers should do the same. If you are going to lay that impressive spreadsheet on your client’s desk, you should be able to explain what the numbers mean and more importantly “why they are what they are.”
Mr. Davidson’s not wrong. In fact, in a financial era marked by disasters rooted in financial opacity, “innovation” and outright fudging as could only be enabled by Excel and its like, any call to get back to the math underpinnings in finance is a refreshing voice of sanity.
The good news about spreadsheets is they simplify presentation and provide incredible flexibility and customizability. The bad news about spreadsheets is…they simplify presentation and provide incredible flexibility and customizability. What’s good for presentation is often no good for content. It’s too easy to copy and paste blocks of cells from one deal template into another without ever considering the applicability of such terms to the specific client or to the investor. The ends might not even come close to justifying the means, but whether the user chooses a method either out of a shaky grasp on the fundamental math, or worse, out of a single-minded focus on the bottom line, the spreadsheet dutifully represents and enables. Which is both a shame and a warning to not do all your work in a spreadsheet.
Opening up, as Coy suggests, a legal pad and a financial calculator before opening a spreadsheet brings real understanding to dealmaking by teaching principles of valuation, and more importantly, teaching how to arrive at valuation principles – not just taking them as a given as inherited from cells D26-36.
To help fight financial innumeracy, Coy laid out three of his earlier posts on financial analysis. Pick up one of these and one of these and check them out