As the CRE investment climate continues its aggressive trajectory across virtually all asset classes, some industry experts question whether current pricing remains in line with valuation. 

But a better question may be what properties are worth overpaying for today, says John Chang, senior vice president of research services at Marcus & Millichap.

“Integral to this idea is that beauty is in the eye of the beholder,” Chang said in a recent video breaking down the current investment climate. “Some people look at a deal and say ‘whoever pays that much for that asset is nuts.’ Then five or 10 years later the investor who bought the property is proven to be a genius. Maybe it’s luck or maybe the rising tide lifted all boatsor maybe that investor simply say something that others didn’t.”

That, Chang says, is the beauty of real estate.  “There’s a real opportunity for investors to use knowledge and expertise to outperform the market and to create value,” he says.

Chang says the current investment climate is very aggressive, pointing to deals selling with “unheard of cap rates” such as apartment deals in Texas with cap rates in the twos and industrial transactions in major hubs like Southern California’s Inland Empire or Los Angeles selling in the same range.

“There are trades happening that really pressure the pricing envelope” in virtually all sectors, including self storage, retail, seniors housing, manufactured housing, hotels, and biotech space. Why? Investors are looking at longer-term drivers,” he says, and “baking those factors into their underwriting…and investors are looking for the angle that others simply aren’t considering.”

Chang says he’d overpay for assets that capitalize on a long-term trend that’s not already baked into the pricethink a hotel catering to vacationing young families or suburban office buildings in markets with strong in-migration of talent and companies. Other solid bets: seniors housing catering to aging baby boomers, self storage facilities in supply-constrained areas with rising millennial populations, and retail centers positioned for new uses.

“Honestly, there are countless properties that could be a big winner for investors with a vision, but there are three really important ingredients,” he says.

The first: information. Investors must understand the property, the market, and submarket, as well as forces that will impact the property over the next five to 10 years, Chang says. The second is insight: what can the property be in the future? Finally, the third factor is perspective: can you align the piece of real estate within the context of who the tenants will be and what the submarket will look like in five years?

“Yes, the anomalies and nuances affecting the market today can create opportunities, but in real estate, the big payoff usually comes over the span of years,” he says.

Chang has previously said many investors will find selling is a much better option now than holding for one to three years, especially if capital gains taxes and interest rates rise.

In remarks this summer, he recommended considering new markets and out of favor liquidity types to balance portfolios. “The market could shift quickly, and opportunities may not stay long. There is a relatively short window of opportunity,” Chang said then.