Some very experienced Industry deal makers sound quite concerned….if this is supposed to be at or close to the bottom of the market then why are the deals almost impossible to make?
Well, they can can make some deals, but if you’re buying, they think the price is much too rich to stomach when you’re at these cyclical market lows. All the sidelined money looks for ” opportunistic returns” but from prime properties in the best markets, so prices are bid up and the chance for a big score dissipates quickly. Most Investors have no interest in any of the foreclosed crud, figuring the economy won’t provide enough of a boost in tenant demand to secure solid gains.
And Opportunity Funds realize without ample leverage the 20% returns they promise investors will be difficult to achieve under any circumstances, and today there’s no way they can get Banks to pony up at 75% to 90% loan to values. And then on top of these hurdles, carried interest legislation will eat into general partner promotes.
This is not an uplifting picture if you are a deal maker use to the “Old Way” .
The Conventional Wisdom has been we’ll go through another cycle- money will eventually flow, lending restrictions will ease, prices will increase, more money will come in, things will get out of control again, and we’ll correct in about ten years. In the mean time on the way up, you can make a lot of money.
Deal Makers have been frustrated that conventional wisdom has not started to play out by now and they begin to question whether the chance for quick money will be attainable at all this time. They’re coming to realize it’s probably more reasonable to expect that a combination of extended consumer issues and ongoing economic funk will temper lending practices for years to come. Financial reform will proffer more restrictions on deal making too. In fact, as the stock market endures at least a mild correction, folks begin to worry more about a double dip.
Real Estate Investors might be better served to stop looking for the holy grail of out sized quick trading hits. We’re just not going back to the good old days of 2005 anytime soon. The focus should be on building lasting core portfolios of well leased income producing properties, and looking to achieve year in, year out returns in the single digits where annualized Real Estate average out anyway. And if values escalate again, these properties will almost certainly jump ahead of the curve so you’ll be in great position to sell out. That’s why purchasing the top properties in the best markets make sense.
This is the reality today…right now the economy and the lenders won’t cooperate… Only Time Will tell if The Lenders & The Economy move in a positive direction…meanwhile the Deal Makers ponder their next move… (credit jonathan d. miller, globe street)