“We are all in the capital allocation business. One of the lessons from 2008 is that the market is always moving, and the market doesn't care whether we agree with it or not.”
So said Matt Bear, founder and CEO of Bear Real Estate Advisors, who recently chatted with GlobeSt.com on lessons learned and how looking for market insights helps to create value. “Our role as advisors and principals is to make decisions based on what the market is, not what we want it to be,” he explains. “Predicting market changes is a fool's game. However, looking for market insights is where the professional focuses their time to create value and achieve the highest return on their money relative to the risk taken.”
As for issues to look out for in 2018, Bear says look at labor. “Construction activity is accelerating around the US as the industry leaves the doldrums of the recession,” he tells GlobeSt.com, however, he says that “for a variety of reasons, immigration being just one of them, the labor supply to do the work has not kept pace with the new demand. Therefore construction costs seems to be increasing daily and competition for the workers is getting fierce and cutthroat.”
To Bear, that is the number one threat to the industry over the next year or two.
But another risk he points to is the interest rate risk. “As long as lenders lend, a rising interest rate environment is something that the industry can adapt to. However, deals already in process can be negatively affected. If you have created a project proforma that depended on a perfect storm of costs, rent levels and exit pricing, you have trouble coming your way.”
Interest rate risk has been a major topic of late. CBRE says in its latest North America Cap Rate Survey that the recent spike in inflation and anticipated higher interest rates this year will add upward pressure on cap rates, offsetting the downward forces of expected strong institutional and global capital flows. “The outlook follows a six-month period in which cap rates fell slightly overall, although they increased in the retail sector in last year's second half, mainly on account of power centers. ”US cap rates were largely flat outside of the retail sector in H2 2017 though a shift from sale to refinance activity contributed to lower transaction volumes,” said CBRE's Spencer Levy.
Keep an eye out for the March/April issue of Real Estate Forum to hear more from Bear as he talks about some of this year's best bets in commercial real estate investment.
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Natalie Dolce
Natalie Dolce, editor-in-chief of GlobeSt.com, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.
