Market Remains Hot Despite Fundamentals

The only exception may be well-leased retail properties. "Retail is white hot," Winn says.

And despite the Fed's recent increase in its short-term interest rates, Winn--No. 1 investment broker at Cushman & Wakefield's office from 1998 to 2002—says there's no sign the market will cool. The reason in Denver, as well as across the US, he notes, is that it is one of the few investments with a current yield, chance of appreciation and a decent chance of appreciation. If investors park their money in money markets or bonds, there is little return, and the stock market has been volatile, he notes.

Indeed, he predicts capital will continue to be plentiful for the remainder of the year for commercial real estate investments. "There's abundant equity," Winn says. "There's no slowdown in sight."

REITs and pension funds will continue to go after "core" holdings, which will provide greater safety and lower returns, he says. Pension money and private investors also will chase "Core Plus" real estate, which are buildings that may have slightly higher vacancies, but greater total returns. The next riskiest class is the "value-added" properties, sought by pension funds, private investors, and Wall Street.

Finally, "opportunity," properties, as its name implies, will provide greater opportunities for reward, but also more risk. This category includes empty or near-empty buildings. Wall Street and private investors are opportunity buyers, he notes.

Cap rates, Winn notes, will remain near their historic lows, despite the Fed's recent action. He pulled out a chart showing NCREIF Cap rates compared with 10-year Treasury bond yields, going all of the way back to 1978, and found little correlation between the two.Winn says that in general, real estate was under-valued from 1996 to 2000, and now it is fairly valued. "We had some catching up to do," Winn says. "Real estate is no longer undervalued."