FIVE LEVELS OF SYNERGY POTENTIAL TO CREATE REAL ESTATE VALUE

01/24/2011 12:54

By Nicholas Ordway, J.D., Ph.D.; And Jack P. Friedman, Ph.D. CRE FRICS Professionals in the real estate industry frequently use the word "synergy." An Internet search in early 2010 using the search string "real estate synergy" resulted in 980,000 hits on Google and 1,130,000 hits on Bing. Downloading a sample of these sites indicated that "synergy" is used primarily as a marketing concept. The concept of synergy is commonly used by industry groups such as property developers and shopping center operators. There is, however, little explicit discussion on how synergy creates new value. Standard real estate valuation textbooks indicate little coverage of the concept and its applications. The objective of this article is to propose a definition for real estate synergy; further, to identify how synergy may be applied to real estate assets on five separate levels. Because of such innovations as the Internet, globalization, securitization of mortgage markets and other changes, real estate analysis requires thinking more about linkages that can create synergy. Many real estate projects are affected by changes in a set of networked externalities that affect the internal economics of the project itself. Synergy is a useful analytical concept for considering value potential for linkages to externalities. Synergy And Real Estate The root of the word "synergy" is the Greek word synergia, which is defined as joint working, working together, collaboration or cooperation. It may be useful to rethink the real estate value in the context of the General Systems Theory. The biologist Ludwig von Bertalanffy is credited with articulating this theory in 1936. It was quickly adopted and extended by others in many fields. Systems theory describes connection, organization and interdependence of relationships. Download the complete article, here.