Analysts Say Investment Capital Outpaces Supply

The New York City, Westchester and Fairfield County Chapter of the National Association of Industrial and Office Properties (NAIOP) held a panel discussion that covered current market conditions and predictions of how the commercial real estate market in the region will fare in the coming months. Most of the session focused on the strong commercial investment market in the New York metro area.

The panel consisted of: Alice M. Connell, investment manager for TIAA-CREEF; Anthony Malkin, president of W&M Properties, the real estate acquisition, management and construction arm of the Malkin family; and Darcy Stacom, executive vice president and partner, investment properties institutional group for CB Richard Ellis. Dean Shaprio, senior managing director of CB Richard Ellis' Westchester and Connecticut operations, was the moderator for the event.

Stacom said that her firm has seen "a flight of capital to real estate" by equity investors who are taking advantage of the financing markets.

She added that part of the frenzy in the commercial sales market has been caused by "extremely aggressive" lenders who have entered the highly competitive marketplace. "When you see Wachovia and Lehman Brothers and many of these other lenders stepping up with just impossibly aggressive bids on transactions it truly does drive the sales market," she related.

Stacom said the properties that are attracting significant buyer interest don't have to be trophy properties, but they do have to be well leased. She also noted that a major facet in the commercial sales market is globalization. "The volume of money coming out of Germany alone is staggering," she said.

Malkin concurred, saying, "There is money, money everywhere." He noted that a particular property class is not critical in determining investor interest. "I think that (Class) B means nothing. It just has to do with leasing." He said that a Class A property that has considerable vacancy will have a hard time selling, while a fully leased class B building will most likely be attractive to investors.

He added that he believes that at least of portion of the commercial sales market today features some highly risky deals.

"An awful lot of what is happening out there today is trading and at some point someone is going to have to open up a can of sardines and eat it," he said.

While many predict that interest rates will go up somewhat in the near term, Connell said that she expects that real estate will continue to attract investors.

"I think at lot of people who sought refuge in real estate have earned a new respect for hard assets," she said. While the commercial sales sector will not be as frenzied when interest rates inch higher, she said the rate hikes could help the multifamily sector, which has suffered from low renter demand because low rates have pushed some renters to purchase homes.