Brownfield Development -An Opportunity For High Risk Reward

As CRE prices have risen to very high levels, and cap rates have declined too much, the debt markets are making it difficult to see how prices can continue to rise much if at all. Spreads have widened considerably and the CMBS market is in a real quandary on how to price risk, and how to properly determine the right spread under the new rules on retention. This situation is not going to get better anytime soon as bond buyers have become more risk averse and as the confusion on pricing retention is far from being settled. The hotel industry is now seeing spreads widen fairly wide of where they were, and that is on top of many capital markets players being dubious about what 2016 is going to generate in terms of NOI for hotels. If hotel REIT and bond prices are a good indicator, hotel investors are very dubious of the likelihood that the industry pundits will be anywhere near correct in their glowing forecasts even as occupancy is showing a continued decline.

There are markets where multi is now potentially reaching excess units as more and more buildings come on line, and as investors are starting to question the cap rates. All while construction costs ratchet upwards. Retail is going through major restructuring as online sales and Amazon and others take a bigger market share. Many consumers are shifting to online shopping instead of battling the parking lots at the malls. This trend is accelerating as more young people become consumers and do most things online. The future of retail as we knew it is now very murky. Whole there will always be stores, the question is how big and how many. Will they become more like showrooms and warehouses, or will they continue to be a place where the vast majority of people actually buy items. Very unclear where all this settles out over the next five years. Add to this the high US dollar deterring foreign consumers, and many cities already well covered by major chains and malls, and it is harder to see where opportunities really lie in retail.