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Bubble Boys and The Scarcity Premium

Last year's hyped deluge of distress has materialized into a drip. Yet, the promise of 2009 was that the lemons of 2005, 2006 and 2007 would finally…

By Ryan Clark - Managing Editor of GlobeSt.com. | Updated on August 01, 2010

Last year’s hyped deluge of distress has materialized into a drip. Yet, the promise of 2009 was that the lemons of 2005, 2006 and 2007 would finally be ripe for the squeezing and investors readied their capital accordingly. The result is a highly competitive market with, perhaps, inflated pricing. The question is whether or not a price can be considered too high on assets that are in the process of price discovery.

“People are referring to it as a scarcity premium,” explains Stath Karras, executive managing director of national investment sales at Cushman & Wakefield. “And many believe that the prices being paid have been pushed unusually high” for this point in the cycle. With more than a few funds on expiring deadlines to spend capital, the money ready to bid-especially on class A properties-is increasing demand rapidly, not necessarily consistent with the cash-flow valuation of the assets themselves.

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