Emerging Trends in Real Estate 2012 - Urban Land Institute

chapter 2
Real Estate
Capital Flows
“It’s a real estate market with
too many dollars for too few opportunities.”
The stock market bounces around producing a decadelong
goose egg, and bonds throw off tiny yields. By
default, capital turns to real estate: its cash-flowing
returns, lease structures, and inflation-hedging characteristics
command attention. “When treasuries return next to nothing, a
6 percent coupon on a piece of real estate is not so bad,” says
an interviewee. But in today’s problematic market, always-fickle
capital also proves “highly selective” and “concentrated.” It’s
interested in real estate, but only in a relatively narrow segment
of the property markets, bidding up prices on the best commercial
assets in the more secure wealth islands and racing into
the attractive multifamily sector. The rest of the underwater real
estate landscape mostly misses out. When institutional investors
talk up the property markets today, they really mean a handful
of big cities, the best suburban fortress malls, and their latest
apartment purchases. They have no interest in most assets in
second-tier cities or outer suburban rings, many owned by borrowers
whose mortgage balances outstrip values, which have
fallen into the pits. And why should they when the economy
stays in the dumps and prospects appear so limited for any
occupancy or rent growth
For 2012, the purveyors of capital will struggle with whether to
cool it in the popular gateways, take a breather on apartments, or
take a flyer on ferreting out true bargains among mostly commod-
Exhibit 2-1
Moody’s/REAL Commercial Property Price Index
2.0
1.9
1.8
1.7
1.6
1.5
1.4
1.3
1.2
1.1
1.0
0.9
2001
All Properties—National Index
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Source: Moody’s, Real Estate Analytics LLC, MIT Center for Real Estate, Real Capital Analytics.
Note: This index is a periodic same-property round-trip investment price change index of the U.S. commercial investment property market. The index is based on the Real Capital Analytics database,
which attempts to collect price information for every commercial property transaction in the United States over $2.5 million in value.
Emerging Trends in Real Estate ® 2012
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