Here's how you can steer clear of logical fallacies in commercial real estate decision-making.

This principle also applies to your past experiences or the experiences of those around you. While experience should always be considered and can serve as a valuable inner guide, it can also potentially lead you astray from promising opportunities. You might find yourself focusing only on information that aligns with your past experiences, which can limit your ability to see the full picture. In other words, be mindful of past experiences clouding your judgment.

Navigating logical fallacies in commercial real estate decision-making is paramount for informed and effective choices. Whether it's avoiding the sunk cost fallacy or the bandwagon effect, staying vigilant against cognitive biases is essential. Consider the example of a commercial real estate investor faced with a property that has underperformed. Instead of succumbing to the sunk cost fallacy and pouring more resources into a failing investment, the investor evaluates the situation objectively and decides to divest.

When you watch the news, they generally present both sides of a story. The problem is they also generally don't give any statistics as to to the position/strength of each side. This issue extends to commercial real estate decision making with for example macroeconomic news stories.

To avoid logical fallacies in my commercial real estate decision-making, I would: 1. Avoid Hasty Generalizations. I won’t make decisions without gathering and understanding all the facts. 2. Ignore Ad Hominem Attacks. I won’t dismiss arguments based on personal dislikes. 3. Understand Value Determination. I’ll remember that commercial real estate value is primarily driven by rent income, not just the price. 4. Remember Acquisition Value Changes. I’ll keep in mind that the original acquisition value can increase over time with proper maintenance. 5. Don’t Fear Inflation. I’ll understand that high inflation rates do not necessarily depreciate the value of high-quality commercial real estate.

Watch out for confirmation bias, it happens when you only pay attention to information that agrees with what you already think. Instead, be open to different viewpoints and seek out information that challenges your ideas. By staying open-minded and looking at all the facts fairly, you can make better decisions without being swayed by your own opinions.

New infrastructure projects do not always increase nearby property values. You should examine each project individually and question how it may actually drive greater demand for XYZ properties in an area. Sometimes you can actually find the opposite occurs-e.g. when the Citylink toll road was built in Melbourne, some council streets were changed to one-way or no-through road to adapt to the new traffic conditions. This had negative impacts for some properties.

Don't assume that one thing caused another just because it happened first. For example, thinking a new development automatically boosted property values. Consider all possible factors, like economic trends or zoning laws, that could have influenced the outcome. Always investigate thoroughly to find the real reasons behind changes.

Assuming that because one investment worked in a certain place, it will work elsewhere is a common error. Each situation is unique, so it's essential to consider all the factors involved. Factors like location, demographics, and economic conditions play a big role in success. Always analyze each situation carefully before making decisions.

A classic real estate faux pas is when someone says 'I bought this property in XYZ year when it was worth $ABC, it is now worth $DEF (with an emphasis on how much growth this is)'. An agent who is worth his/her salt, should take these figures, work out what they are on a per annum rate, and then cross reference this rate with the average growth rate for similar assets. You may find that whilst the story of many zeros being added to the property value sounds nice & impressive, in reality it was actually a below average investment.

In my LinkedIn articles you will see a post about Stupidity Theory. In simple terms it is when someone, based on flawed assumptions, buys a property in an area which has experienced significant growth expecting that to continue. This can be a good strategy if the assumptions are well founded, but there are two common & obvious assumptions which are not well founded. The first is thinking the current elevated 5 year growth rate will remain above its long-term (40 years plus) average per annum growth rate-i.e. the long-term average growth rate of an area is lifting (unlikely). The second is thinking the 5 year growth rate when elevated will continue to increase month after month (it likely won't, eventually it will regress).