Institutional and private investors are seeking yield in commercial real estate. There are many investors than there are good investment properties. Small investors have to complete with the big players in the market who can offer a larger premium for commercial property. The increase in demand and decrease in supply for commercial properties are pushing prices up. Foreign investors are willing to overpay and invest more capital into commercial real estate for long term growth and yield. Buyers are taking advantage of the easy credit market conditions by buying as many commercial real estate properties possible. As market values increase, sellers can continue to sell their commercial properties at premium values.
Excerpts from the Article: “Nelson said there has been a lot of attention paid to a few transactions in which some foreign buyers have supposedly overpaid for trophy assets because they were purportedly more concerned with parking dollars in safe U.S. assets rather than achieving a market rate of return.”
“There is a ton of money out there chasing commercial real estate, but in my opinion, you can never have too much capital at least from a seller’s perspective,” said Paul Carr, senior managing director, spearheading the capital markets team at DTZ in Tampa. “Most buyers probably don’t enjoy having the additional competition, but we have seen what it is like to not have enough capital chasing deals, especially in challenging markets.”
“…Kradjian said he sees two typical outcomes. Sellers with high expectations hold on too long to their existing assets and eventually lose prospective buyers. Or, out-of-market buyers pay a premium for assets on which they are unlikely to achieve necessary return.”
Citation and Link: Heschmeyer, Mark. “Too Much? Too Fast? Investment Markets Eyeing Free-Flowing Capital With Some Concern.” Costar News. 25 Mar. 2015. 01 Apr. 2015. http://www.costar.com/News/Article/Too-Much-Too-Fast-Investment-Markets-Eyeing-Free-Flowing-Capital-With-Some-Concern/170037
Picture Citation and Link: “Too Much? Too Fast? Investment Markets Eyeing Free-Flowing Capital With Some Concern.” Costar News. 25 Mar. 2015. 01 Apr. 2015. http://www.costar.com/News/Article/Too-Much-Too-Fast-Investment-Markets-Eyeing-Free-Flowing-Capital-With-Some-Concern/170037