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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: John Vosilla who wrote (46393)	12/30/2005 7:36:20 PM
From: KM	Respond to of 306849

Comment? This is off Minyanville today. Mini-Minyan Mailbag Prof Succo- I wanted to give an example of ridiculously low risk premiums in my business-commercial real estate. “Investors” have been paying prices for commercial real estate yielding 3-4% over the last 2 years or so (this is changing and IMO will change rapidly over the next few months upwards). The relationship is inverse to price so as prices went up the cap rates (i.e.: the rate of return an investor accepts for his/her investment) went down. The long term average is roughly 10 and in “risk averse” periods cap rates tend to spike to 15-20 or higher. Some of the assumptions I have seen are quite ridiculous. Remember in the early 90’s when you couldn’t “give” real estate away? In residential condo conversions (16,000 new units coming to market in Manhattan alone in 2006, who will buy them?), developers in Manhattan have assumed all in costs of approx 600-700 per sq ft with “proforma” sell out prices of $1000 per sq ft. You can see what is now happening with sales softening, prices coming down and FINALLY lenders are reluctant to finance…where do risk premiums go from here? A lot higher in my book…