Demand and Pricing Expectations

An analysis of sales trends shows several very interesting factors that portend how the balance of 2015 will perform.
Jack Kern

Read part 1.

An analysis of sales trends shows several very interesting factors that portend how the balance of 2015 will perform. With the real estate investment cycle, having started up again around 2010 approaching the end point of sponsor equity terms I’m expecting to see additional properties come to the market starting in late 2015 for some deals. The likelihood is that even more properties will again return to the market throughout the balance of this decade. Many property sponsors acquired portfolios and individual assets in 2010 with the expectation of a five year hold period for some very high quality properties, while others are staying with a slightly longer five to seven year horizon. That means that we are at the very beginning of many sponsors needing to return capital to their partners and the expectation is that with the change in allocation and scope of investor appetite for higher yield alternative investments some but probably not all of the capital gained will still remain in the apartment sector.

An interesting trend is that the disruption caused by the last recession from 2007 to 2009 pushed a great deal of investor interest into 2010, which started the great demand cycle effectively compressing cap rates to their current levels. Previous to this change the demand for mostly investment class assets kept cap rates at a more normal level and for longer periods of time. Now the cycle has accelerated and cap rates remain compressed for all but a very select few assets.

Read the entire blog here.