This week’s Capital Market commentary is provided by Tom Powers:
In meetings with institutional investors in Boston, Chicago and San Francisco over the past few weeks, what I found was continued uncertainty in the markets. All have capital they want to deploy and they are finding it very hard to find product that meets their investment criteria. Thus, the delta between supply and demand continues. As we have mentioned a number of times, core product is in short supply and with huge demand, is achieving very aggressive pricing. Value add is still sought after by many investors, but with the inability to get financing for these projects, activity remains slow.
I am also hearing talk questioning the current ‘Fund’ structure. It continues to be very difficult to raise new equity and somewhat smaller, more nimble funds may be the way to go. On the other hand, for investors like IIT, Blackstone and Morgan Stanley, big is better and provides them with advantages that smaller investors do not have.
With market fundamentals continuing to get better, and the stock market scaring many away, we expect to continue to see considerable demand for real estate for the remainder of the year. Investors are moving from Class A core into Class B property as well as reaching out away from the coastal markets to the second tier cities where they can get better returns and have less competition.
It will be interesting to see if the Romney vs. Obama showdown that now seems assured, will lead to more or less uncertainty in the markets over the coming weeks and months…