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The Fundamentals Reality: Weak Demand

We all know about fundamentals and supply and demand. But the supply and demand that many real estate investors seem to focus on today is capital. They count on more capital to make things better. They hope if capital comes back into the markets we can start doing more deals again, prices would increase in the augmented trading, and the cycle would ramp up. Bad deals transacted near the last market peak might have a chance, if they could be bailed out by appreciation.

By Jonathan D. Miller | Updated on June 21, 2010

We all know about fundamentals and supply and demand. But the supply and demand that many real estate investors seem to focus on today is capital. They count on more capital to make things better. They hope if capital comes back into the markets we can start doing more deals again, prices would increase in the augmented trading, and the cycle would ramp up. Bad deals transacted near the last market peak might have a chance, if they could be bailed out by appreciation.

In fact, the really smart market timing players did focus on capital flows—they started selling when markets began overheating circa 2005, and they are ready to make deals with their dry powder now. But the smart money realizes at the bottom of the cycle they need to focus on the traditional supply and demand drivers which dictate property revenues–higher occupancies and rental rates. They are wise to pay attention to the fundamentals that signal what tenants are going to do.

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