Property Prices and Fly Fishing

Sometimes I wonder if it says “kick me” on the back of my suit. I’ve been following property prices and talking to a number of colleagues about trends in apartment, retail and industrial and for some reason on at least two occasions the conversation turned to fly-fishing. I don’t know anything about fly-fishing. In fact, the only time I tried it, it took a while to pick the flies (the hook kind, not the buzzing kind) out of my lucky fishing shirt. (All real estate people have lucky fishing shirts. Go on, just ask them). Inevitably there seems to be some connection between the zen of getting up at the crack of dawn (donuts are freshest then but not good for bait, unless you’re fishing for zebra fish) and finding yourself standing in the middle of a serene river, water tumbling by your waders (my shoes filled up with cold water, what a dork) and contemplating what? Why property prices of course, at least that’s what I was thinking about. There is a natural equilibrium in economics known as the Fly Fishing Conundrum, which when stated in purely scientific terms means, why are you bothering to get up in the middle of the night to go catch a fish you’re going to throw back anyway so it doesn’t leave an aroma in your car?  The parallel to property prices is pretty obvious then, in that investors seemed to rushing to find the most valuable deals only to find out now, at this point in the cycle they can’t make pricing and yields work. The deals then, stay in the transaction stream, being examined by one buyer after another but not closing. That is what is happening now. We’re finding that property transactions are either flat or trending down slightly, according to the latest release by Moodys/RCA Commercial Property Price index. The Real Capital Analytics data is the most accurate in the industry and a bellwether to help understand property price trends. At this point in the cycle, if prices are materially stable, we should see cap rates begin to decompress and yields correspondingly to start to improve. Based on the fact we’re heading into the summer season where transactions traditionally slow, only those fishing for bargains may find something worth keeping. Otherwise, it’s just a lot of lines in the water and little real progress in growing portfolios.

Jack Kern is the research editor of Multi-housing News and Commercial Property Executive magazines and has been banned from fly-fishing for life due to an unfortunate misunderstanding about using a pizza as bait. When he isn’t out causing trouble at the nearest trout stream, he can found at jkern@multi-housingnews.com. Trout who have already written in need not resubmit complaints.