Draw: Secondary, Value-Added Real-Estate

Some highlights from the typically highly informative National Real Estate Investor website, this one by Beth Mattson-Teig:

Draw: Secondary, Value-Added Real-EstateMore investors have recently started to realize that core property investments may be fully priced, if not overvalued, and that the cap rates being paid for these properties are placing too great a premium on the value of cash flows, notes David Rubenstein, founder and senior managing principal at Rubenstein Partners. “The question becomes where else to turn? Our belief for a while has been that there is a great opportunity in value-added office,” he adds. [Value-added means fixed up. Value has been added. Note: It’s also used pre fix-up: someone looking for “value-added,” as in property ripe for being fixed up.]
The investment shift into secondary markets is already well under way. In 2012, the big year-over-year volume gains were not in major markets such as New York and Washington, D.C., but instead were in the secondary markets, notes Fasulo. Seattle, for example, saw its commercial and multifamily investment sales jump 123 percent last year to reach $10.5 billion in sales, according to RCA. “The fact that property pricing has gotten too expensive on the coasts will continue to accelerate investment activity in secondary markets in 2013,” Fasulo adds.

Multifamily remain the most sought after investment type. Yet falling cap rates on apartments have not deterred investors as buyers are still willing to bet that rents will rise. That said, competition is driving buyers to go from class-A trophy assets to class-B, ’90s-vintage assets and even to class-B- properties built in the 1970s and 1980s.

Read the whole article (opens in a new tab so you may easily comment here): Private Equity Investors Play the “Yield Compression Game”.