Weekly News & Capital Markets Perspective

November 3rd, 2011

This week’s perspective is provided by Jim O’Connell:Jim O'Connell

GETTING BACK TO A “NORMAL” STANDARD ???

This weekend we “fall back” to the times in our standard time zones.

What I’ve been wondering is, are we also moving back to more standard times in our commercial real estate world?  Consider some of the latest market observations and points:

  • The overall economy seems to still be sputtering at best, although many demand factors continue to drive the leasing markets
  • The stock market is flirting with the 12,000 mark again and had the best October in 25 years
  • Interest rates seem to be slowly inching up again; 90 day Libor up 10bps in the last 60 days and the 10 year Treasury rate has been up as much as 10% over a similar time period
  • There are still plenty of investors searching for and buying quality, stable real estate properties
  • Apartment occupancy and rents are on the rise (Wall Street Journal 10/26/11)
  • The volume of commercial property sales during 2011 is increasing dramatically and becoming more widespread, including not only stable properties but now more distressed properties
  • Nationally, transaction velocity on distressed properties is increasing exponentially, in the last 12 months Special Servicers alone increased transactions by 65% over the previous 12 months and by 860% over the 12 months before that  (Wall Street Journal 11/2/11) to $11.6 billion of value

These points, along with scores of other occurrences are what our world is currently experiencing.  Strangely, many of these are looking and feeling somewhat familiar again.  The question I have, is the malaise that has gripped most of our markets and business sectors finally evaporating?  Are we moving into the beginnings of another great time of opportunity?

I think the answer is yes.  It won’t be without its interruptions and steps back, but overall it looks like we are on the front edge of a very prolific time in our industry as we work our way through this major period of asset revaluation.  Opportunities for investors will become even more plentiful, especially for those who have access to capital and can address the real estate associated problems the assets have.  Given a new lower basis, new owners of properties will be able to compete for transactions that will allow them to drive cash flows up and increase values once again.  Jim O’Connell

 

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