Snail's Pace

When the financing and real estate markets decoupled in 2008, many investors looked at the final years of the last real estate crash in 1990-1992 for answers. Those were the days when the RTC dumped assets en masse, then investors came in and eventually made fortunes. Many were not even experienced in real estate but had liquidity and were able to buy distressed assets for as low as 10 cents on the dollar. This time around, a myriad of funds set up promising lofty returns to attract investors, but as the downturn persisted, much to the dismay of fund managers and investors, the lenders haven’t dumped assets to any great degree. The waiting game and lack of for-sale product has forced some funds to accept lower returns, while others have been sidelined or shut down.

Today, it’s all about capital competing for a limited supply of assets hitting the market. In order to be a successful bidder, many investors are now reaching for assets and even plugging in lease-up assumptions to make the numbers work. For example, when the market downturn initially occurred it was common for an investor to cap in-place income to determine price. In order to compete, many investors are pricing in future upside, resulting in cap-rate compression and higher asset prices.