LOS ANGELES—We have reached a fully priced market, but that doesn't mean that there aren't opportunities for good deals. Allen Matkins partner John Tipton says that investors become more focused on fundamentals, like land prices and locations in markets with less aggressive rental rate appreciation. While rental rates are growing today, developers are looking three years into the future with more skepticism about rent growth.
“You get in these periods in recovery where it is kind of hard to have a bad project. Everything is going up, and the rising tide is lifting all boats,” Tipton tells GlobeSt.com. “Now, we are in a more fully priced market, people get more focused on the real estate touchstone of “location, location, location” and land prices. There is going to be less fluff in the numbers from rent growth to carry a project. Now, it has to be a 'real' project.”
In terms of pricing, we have already hit pre-recession highs. Naturally, investors are going to react differently to deals today than they did at the height of the recession. “We have had a long recovery already, and we know that human activity is cyclical, we just don't know the length and depth of the cycle,” Tipton. “Real estate has recovered a lot. If you look at today's pricing relative to 2007 and adjusted for inflation, we are back to those valuations. It is not like it was in 2010 when you could pick up a great deal. Today, there are full-priced deals.”
Peak pricing and slow rent growth doesn't mean a full halt to transaction activity. Tipton says that the market is still healthy. “This is a great market, and this is an area of employment growth,” he says. “There are still opportunities for good real estate plays.”
LOS ANGELES—We have reached a fully priced market, but that doesn't mean that there aren't opportunities for good deals.
“You get in these periods in recovery where it is kind of hard to have a bad project. Everything is going up, and the rising tide is lifting all boats,” Tipton tells GlobeSt.com. “Now, we are in a more fully priced market, people get more focused on the real estate touchstone of “location, location, location” and land prices. There is going to be less fluff in the numbers from rent growth to carry a project. Now, it has to be a 'real' project.”
In terms of pricing, we have already hit pre-recession highs. Naturally, investors are going to react differently to deals today than they did at the height of the recession. “We have had a long recovery already, and we know that human activity is cyclical, we just don't know the length and depth of the cycle,” Tipton. “Real estate has recovered a lot. If you look at today's pricing relative to 2007 and adjusted for inflation, we are back to those valuations. It is not like it was in 2010 when you could pick up a great deal. Today, there are full-priced deals.”
Peak pricing and slow rent growth doesn't mean a full halt to transaction activity. Tipton says that the market is still healthy. “This is a great market, and this is an area of employment growth,” he says. “There are still opportunities for good real estate plays.”
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