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Seeking Balance: Capital Supply, Space Demand

WESTPORT, CT—As long we in the investment advisory business make sure that underwriting terms and speculative development do not extend the market into dangerous territory, there's a good chance that what goes up will not come crashing back down this time, says a source in this EXCLUSIVE column.

By Jack Mullen, founder and managing director of Summer Street Advisors LLC | Updated on August 27, 2014

WESTPORT, CT—The US commercial property market is facing an unprecedented wave of investment capital that portends increased competition for existing properties and capital for new development.  That bodes well for the commercial real estate sector in the next few years.  But as investors ride the rising tide property values, it’s important to remember that waves eventually crash, and can wipe out the unwary.

In an ideal market, property values rise because availability of capital is balanced by increased demand for space. Investment professionals are often concerned about economic factors that can reduce or shut off the supply of capital. By contrast, almost nobody ever worries about an oversupply of capital. But history has shown that too much money chasing too few viable deals can lead to “irrational exuberance” that often ends badly.

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