54. Dream or Reality?

Every brochure contains estimates or projections of dis­tributions and of income which shall be used to make such distributions. Are those projections fair and real­istic, or are they starry eyed hopes of the man trying to sell you a unit?

If you have a building which has been in existence for a number of years and if the projections are stated to be based on past earnings, you are probably on solid ground.

However, many times you will receive brochures about buildings which are not in existence yet—or have not yet been fully rented. You will see beautiful illustrations, called "architect's rendering." That means it is the draw­ing of a building yet to be built and portrayed as beauti­fully as a skilled artist can draw it. The income is esti­mated on what the syndicator hopes will be available, when as and if he rents it all and gets the mortgage fi­nancing which he needs.

At other times, you may receive a brochure concerning an existing building. When you look at the past rent roll, you may find that it is insufficient to pay the promised distributions. The syndicator tells you of his intention to improve the building by altering or modernizing it and of the additional income which the alteration and mod­ernization will produce, if his hopes come true.

We have no quarrel with builders, nor with energetic and imaginative real estate operators whose imaginative planning and good management are able to increase the yield of property. Deals which are still under construction or are projected may have a very bright future once their full potential is realized. But they differ from exist­ing and proven ventures in that they must be considered somewhat more speculative. We believe, therefore, that on a deal which is only on paper or not fully realized, you should get a somewhat higher return than on a deal which involves existing properties with proven invest­ment value. This is an additional element for you to con­sider.

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