Talk about short memories. Some investors appear to be alreadyoverpaying for real estate in markets only recently lurching offbottom. The “richly-priced” deals are few and far between,concentrating in the very best, most resilient markets: WashingtonDC, New York, and San Francisco. But buyers are placing bets againon tomorrow’s hopeful cashflow assumptions, ignoring current anemicrevenues while stepping over the carcasses of yesterday’s overlyoptimistic players.
Now, if you’re going to overpay, market bottom is the time to doit, and many of these deals are modestly leveraged or even allcash. And since interest rates can’t go any lower and the stockmarket looks rocky, a six cap or under deal can be rationalizedwhen you’re talking buying up prime real estate in the bestmarkets.
Buyers have been mostly investors with cash burning holes intheir pockets: the odd REIT needing to put IPO proceeds to work,German institutional funds eager to market time, and carefullydisguised Middle East money. The targets are typically well-locatedoffice and recently beaten up prime hotels. The officeinvestors assume core style single digit returns even if stillfalling rents suddenly spike in three or four years. The hotelplayers may hope for bigger pay days in this always volatilesector, but face a steep arc to increased revenues.
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Jonathan D. Miller
A marketing communication strategist who turned to real estate analysis, Jonathan D. Miller is a foremost interpreter of 21st citistate futures – cities and suburbs alike – seen through the lens of lifestyles and market realities. For more than 20 years (1992-2013), Miller authored Emerging Trends in Real Estate, the leading commercial real estate industry outlook report, published annually by PricewaterhouseCoopers and the Urban Land Institute (ULI). He has lectures frequently on trends in real estate, including the future of America's major 24-hour urban centers and sprawling suburbs. He also has been author of ULI’s annual forecasts on infrastructure and its What’s Next? series of forecasts. On a weekly basis, he writes the Trendczar blog for GlobeStreet.com, the real estate news website. Outside his published forecasting work, Miller is a prominent communications/institutional investor-marketing strategist and partner in Miller Ryan LLC, helping corporate clients develop and execute branding and communications programs. He led the re-branding of GMAC Commercial Mortgage to Capmark Financial Group Inc. and he was part of the management team that helped build Equitable Real Estate Investment Management, Inc. (subsequently Lend Lease Real Estate Investments, Inc.) into the leading real estate advisor to pension funds and other real institutional investors. He joined the Equitable Life Assurance Society of the U.S. in 1981, moving to Equitable Real Estate in 1984 as head of Corporate/Marketing Communications. In the 1980's he managed relations for several of the country's most prominent real estate developments including New York's Trump Tower and the Equitable Center. Earlier in his career, Miller was a reporter for Gannett Newspapers. He is a member of the Citistates Group and a board member of NYC Outward Bound Schools and the Center for Employment Opportunities.
