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CENTURY CITY, CA-As the economy continues its sluggish movement toward recovery, investors in Southern California markets have responded to cautionary tales of the last decade. As a result, two trends have emerged: intense competition for core, stabilized assets has driven large institutional investors into secondary and tertiary markets; and low interest rates have propelled an influx of developers and individual investors to enter the commercial real estate market.

Large, stabilized assets typically attract institutional investors or real estate firms with extensive reach. Investors beholden to institutions or firms may have hundreds of millions of dollars or more to invest and must meet a certain return. In order to achieve a certain yield, they solicit stabilized, proven assets which can return 7% or more versus a standard < 1% on a CD or bonds. Established assets generally attract investors who aren't looking for value-add; they are focused on stabilized core assets. Lessons learned from the recession and increased competition has prompted a flight to quality assets, driving larger institutional investors to non-prime markets. Compared to five years ago, stabilized assets are at a premium with highly compressed rates. Large institutional investors are therefore being pushed into secondary, even tertiary markets. In Southern California, everyone wants to put money into core stabilized assets, pushing prices up and forcing large real estate funds to become more aggressive. Even with extremely compressed CAP rates, prices continue to rise.

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