On June 26th The General Motors Corporation (GM) common stock closed at approximately $11 per share. That’s the same price (adjusting for splits and dividends) that it closed on in December 1986, 22 years ago. GM has gone from being the largest market capitalized company in the Dow Jones Industrial Average to the smallest. What sound bites for the media. But the media missed the real story, which is in the why. NetGain believes GM has been the victim of some of the poorest management decisions in American history.

It is management’s responsibility to design a responsive business model, and then supervise the execution of that model. The post World War II era left GM in a strong financial condition combined with the largest and most productive factories anywhere. The world was in post war rubbles, leaving GM with a virtual monopoly on automobile production and sales. They built and sold record numbers of cars.

During the 1950s and 1960s, the rest of world started to rebuild itself. GM changed nothing and stayed the course with the same business model. The believed they could decide the design and quality, and the consumer would buy it. The company was not driven to relate to or respond to the consumer (their customers). The result of this static business model was that GM customers found other companies that were responsive to their desires, and started buying their cars from them. Honda and Toyota, which were non-existent in the 1950s and 1960s, now have market capitalizations of $124 and $149 billion respectively. GM’s market capitalization today is $6.4 billion.

During these same recent decades General Electric under Welch exploded in growth. Citicorp under Weil became a powerhouse. Apple under Jobs reinvented itself with huge profits. Each leader designed a responsive business model and successfully supervised it.

NetGain believes that the management mistakes of GM are an important wake-up call for the commercial real estate industry. The reasons behind GM’s failure are centered on the fact that management didn’t change their business model in the face of significant international business changes.

Today, the combinations of globalization, emerging countries, fanaticism, a technical revolution, energy demands, and energy costs are driving significant social and economic changes. America is changing from a manufacturing based economy to a service oriented economy, competing internationally, concerned about security, creating new industries while increasing mobility, and incurring higher energy costs. All of these changes cry for the investors of commercial real estate to take a fresh look at their business model.

In all business types, though certain characteristics may be different, the principles behind investment success are the same. The mistake too many commercial real estate investors make is that they don’t understand or believe income property is a business and has to be acquired and managed accordingly. The product of the income property business is square feet. The clients are the lessees, and the value today and tomorrow will be determined by the quantity and quality of the bottom line. GM’s mistake was a business model that didn’t relate to or respond to the consumer (their customers). Commercial real estate investors can’t afford to make that same mistake.