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| Real Estate & Land |
Fertile Assets
Michael Verdon
06/01/2004
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The number of commercial sales rose about 10 percent last
year over 2002. The buying frenzy is such that some otherwise intelligent
investors are abandoning reason: Lowrey says that in some markets, buyers are
waiving due diligence before their purchase. “That isn’t the norm, but it’s an
indication of how aggressive it has become.”
Individual investors are
becoming increasingly innovative in their attempts to tap this market, and to
compete for properties with institutional investors. “Our parent company, CB
Richard Ellis, did $16 billion worth of commercial real estate transactions last
year,” says Raymond G. Torto, chief strategist of Torto-Wheaton Research in
Boston. “They’re finding that small syndicates and individuals are buying big
chunks—up to a half—of what they’re selling. High-net-worth individuals are
moving into real estate because of what’s happening with other investments.”
Whether the investors rushing into the real estate market now are akin to those
who bought Nasdaq stocks in the first quarter of 2000 will only become apparent
with time.
Bubble-Like
Torto, who follows the U.S. commercial market closely, says he
does not see any bubbles, but rather bubble-like phenomena in some property
types, such as condos and other multihousing properties. Capitalization rates (a
ratio used to estimate the value of income-producing properties calculated by
dividing their net operating income by their price) in many markets are at
historic lows, meaning the same amount of income is supporting ever-higher
prices—a phenomenon that gives many investors pause.
Craig Hall is cautious
about the current market and suggests that it could be a good time to sell. “The
risk—and I think it is very real—is that if you pay a high price based on
today’s values, interest rates could go up and, in turn, cap rates might
follow,” he says. “That means a lower value five years from now.”
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