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Real Estate Valuation


At a real estate conference last week, Institutional real estate players delivered a stark message. ‘There is not a lot of value in real estate markets just now’.

To paraphrase – Capital flows and transaction activity vastly outpace available properties. The money is way ahead of the fundamentals (i.e. future rent growth). The velocity and depth of new money coming into real estate markets is ‘scary’.

Wow. And these folks are trying to sell real estate.

Institutional real estate markets include Industrial, Office, Retail and Multi-unit Residential properties. No doubt, Bankers are more cautious, buyers are more disciplined and underwriting is more solid today, however …

REITs are Institutional real estate buyers. When abundant capital is starving for product, buyers migrate up the risk curve in the search for yield … beyond quality ‘core’ real estate properties in to secondary and tertiary … i.e. riskier projects. So Individual Investors buying REITs today will not only pay more, they will take on more risk.

I’ll say it again … ‘stuff looks expensive’.

What should Individual Investors do?

A feeding frenzy is not the time to buy. 

Next time?
More Real Estate Valuations.
Doug Cronk CFA is Manager, Investments for a Canadian Pension Plan
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6 Comments Post a comment
  1. Thanks for validating my thinking.

    Like

    May 21, 2011
  2. diversifyme #

    Additional support for the assertion that things are expensive:

    http://www.economist.com/blogs/buttonwood/2011/03/economics_and_markets

    Cheers,
    S

    Like

    May 19, 2011

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