GlobeSt.com EXCLUSIVE: Investors See Trouble Brewing

NEW YORK CITY-Record building prices will come back to haunt the industry. That’s the word from a couple of investors who say that record low cap rates and interest rates can’t last forever. One even went so far as to say we’re about to see some of the worst deals in the industry’s history.

“People are signing off certain assumptions because they have to move capital,” says Larry Wyman, co-chairman of locally based HRO Asset Management. “But those assumptions are completely disconnected to the fundamentals of the assets and the history of the markets. On a national basis, we’re seeing record pricing on a square-foot basis for properties that in many cases are in markets where the net rental fundamentals have only declined over the past 10 or 20 years.”

Wyman isn’t the only investor who sees trouble brewing. Another local expert, requesting anonymity, cited a Manhattan building that sold a few years ago for a trophy price and then suffered a cap rate-invoked slump in its NOI. “We’re at historic lows in terms of both interest rates and cap rates,” he says. “But everyone is seeking alternatives to the stock market, and they reason that even if they get a 5% or 6% return in real estate, that’s good, and you can’t lose on a hard asset.”