In recent months, office building purchases have dominated the real estate news.  This has been in the form of both individual asset buys, or huge portfolio acquisitions.  Most have been in the major office markets.   Without question the top two markets are NY and DC.  Which one is best? Over the past 12 months, an unusually large number of sales have occurred in both markets.  Table 1 shows the number of sales that has occurred in Wash DC. Table 2 shows the number of sales that has occurred in NYC during the same period. Table 3 shows the relationship of cap rates and T-bills as of year end 2006.  Historically, cap rate spreads have been 100-200 b.p. above T-bill rates.  What can or should be made of this recent shift? What can be said about this data in terms of investor preferences? The following conclusions can be drawn: First, without

During the past 3-4 months, it has become apparent that initial cap rates (Ro) again appear to be headed downward in the DC area for top tier apartment and office properties.  Cap rates during the bubble period (pick a range…2005/06 to 2007/08?) generally were in the 5-7% range for high end DC apartment and office properties. From mid 2008 through mid 2009, cap rates were back into the 7-10% range (up 200-400 basis points over the peak) for both categories, depending obviously on individual details.  That is, when a property was actually traded.  Few, in fact, traded due to this material value shift (30-50% value loss via simply cap rate increases alone). In the past 90+ days, however, they appear to be headed downward in DC Metro.  Does this mean we are once again headed for a pricing “bubble”? Top Tier Property 2010 Prospects If one studies the recent shift

Capitalism has long been regarded as a system of “creative destruction”.  Market cycles are frequent and wide ranging and only vary is size and breadth.  The strong survive; others fail and disappear.  Recent financial market distress clearly has resulted in the “destructive” portion on the statement.  Does it always have to be this way?  Is “creative growth” possible? A review of historical, financial crises as they relate to the real estate world have eerily similar causes and results: Era                             Causes                                                Results 1960’s              Inflation; int’l growth; tax code            Severe inflation; Financial stress 1970’s              Int’l crises; commodities                     Severe inflation; financial distress 1980’s              Tax code changes                              Lax underwriting; oversupply 1990’s              Overbuilding; overleverage                Financial meltdown; liquidations 2000’s              Too much liquidity; underwriting         Financial meltdown. While the dates may vary slightly from this simplistic model, the results have been highly consistent:  Severe financial distress and chaos occurred.  Unquestionably, this affects everyone since financial resources impact