I wanted to start a healthy debate on the future of CRE prices going forward. Let's be honest, prices are overheating, especially in top markets like NYC, SF, DC. I been seeing cap rates for trophy assets under 5%. some even under 3%. The only cap rates at 9% or 10% are some serious risky properties or run down places. Its become evident that buyers are desparate for yield and this has allowed sellers to have a ton of bargaining power. I do believe interest rates will rise, but it will be very slow and gradual. So when do you guys believe prices will fall again? Any predictions on year? Any insight onto whats taking place in the market? From my end, developers have been gaining steam, its been crazy.
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I don't have the time to expand. I'll come back to this thread later.
Despite being an "alternative" asset class, CRE obviously tracks the public markets closely. Only 15% of all business cycles have lasted longer than this current one. To top it off, there has never been Fed intervention on this scale ever, not even close. This is a huge wild card. My guess is that within the next two years we will see a sharp pull back.
Between the cap rate compression and what is happening in the RE capital markets...I think people will have to tread carefully.
I like to keep it simple.
http://www.multpl.com/s-p-500-price-to-sales
I agree with DB in respect to the wild card... There is just so much capital in the space right now that its been extremely difficult to allocate capital towards acquisitions in Tier 1 and now 2 markets. Even if interest rates do rise in the short term, it takes time for buyers and sellers to close the gap b/t sell vs. buy prices.
We have focused on deploying capital towards ground up developments b/c there is such a delta between build vs. buy in so many property types/markets across the country. Merchant developers that build institutional quality product and selling to large funds have been killing it... I think its all about adjusting your strategy and hoping to get a little lucky
Whenever treasuries come back up.
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