One Factor Behind The Bid-Ask Gap

DC’s K street

WASHINGTON, DC–Commercial real estate has a bid-ask gap problem — meaning that buyers and sellers are unwilling or unable to come to agreement on the price of an asset. There are a lot of factors that go into this logjam starting with the varying opinions on where the cycle is.

PwC’s Real Estate Deals Leader Tim Bodner happens to believe that assets are fairly priced right now, largely because in most sectors operating fundamentals remain stable. Also, he tells GlobeSt.com, leverage is not anywhere near what it was in prior cycles.

Valuations Are Not Too Rich

But Bodner dismisses the notion that buyers have concluded that valuations are too rich. Rather, he says the bid-ask gap is more a function of the large amount of private equity that is circulating in the market, their cost of capital is — and what they are able to get from a return perspective, based on that cost of capital. “Your opportunistic funds generally have a higher cost of capital and so it is a lot harder with that cost of capital to get the yield to work where the market is,” he says.