Obviously depending on the submarket, there is now too much capital chasing too few deals even in secondary markets. As an investor who tries to seek out value add or development transactions, it has become very much harder to find deals that pencil well enough to justify the prices we see others willing to pay. Lately, what are supposedly off market situations to start, sometimes morph into auctions with either unsophisticated investors jumping in, or Asians just interested to move flight money and not really caring about maximizing returns, or others who do TIC or other syndicated or semi public REIT deals where they are satisfied with 6% or similar returns.  Continued underpriced debt, has stoked offers that in the long run will not withstand the pressure of rising rates. I have had numerous investors tell me that they can borrow at a 4 handle or less and so why not go for it. They correctly believe they can lever up to generate a 11%-12% cash on cash return and do not care if there is a capital gain in the end.

 

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