The “smart” MBA money knows that assets are priced based on the present value of future cash flows discounted at an appropriate risk premium. There is no mention in real estate finance textbooks of adding a premium for irrational exuberance or too much money chasing too few deals.

Then we witness two asset bubbles expand and burst in less than 10 years. Now a few academics are excitedly discussing behavioral economics which allow for investor sentiment and transaction volume to distort asset pricing.

During 2011 we saw the “smart” money once again chasing technology start-ups and overpriced commercial real estate property in select cities like New York, Washington, and San Francisco.

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