Bubble, Bubble, LTV, and Trouble
The Real Deal Online reports: A recent article on The Real Deal’s site presented some facts to help determine whether there is a danger of a bubble in top-end commercial real estate. Initially, the two sides of the debate propose that, “Some say investors anxious to deploy capital are driving up prices by overpaying for questionable assets. But others argue that, so far at least, still-tight lending guidelines and other restraining factors are preventing a repeat of the mid-2000s bubble.”
The Real Deal went on to present some recent deals, recorded by Real Capital Analytics (RCA), which have rivaled even the frothiest sales done during the mid-2000s bubble. CB Richard Ellis realized a 42% return in just two years when they sold 1450 Broadway in Manhattan to Zar Property Group for $204 million last May. In the same month, RCA registered an incredible 4 percent cap rate on a $845 per square foot sale of Manhattan’s 750 Seventh Avenue, when Kuwait-based Fosterland Management paid a price that rivaled the former 2007 trade.
These competitively-priced, possibly over-valued deals are being facilitated by low borrowing rates and an increased pace of CMBS activity. The Real Deal quoted RCA Managing Director Dan Fasulo as stating that, “CMBS will likely account for 15 to 20 percent of commercial real estate transactions in the nation this year, compared to almost none during the recession.”
Mr Fasulo went on to make it clear he doubts there will be a bubble in commercial real estate any time soon, pointing out that loan-to-value ratios still remain 20-30 percentage points below where they were during the last real estate bubble. “These ratios are starting to creep up…We have seen some in the 70s during the last couple quarters…at least this time investors are using some of their own money…I don't think lenders will let it get crazy again."
View the full article on The Real Deal Online: Bubble, Bubble, LTV, and Trouble
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Posted by: Nina Turner