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Maybe CRE Valuations Are Not As Bad As The Fed Says

“As far as alternative investment vehicles go, I think real estate remains well priced.”

The Federal Reserve Bank in Washington DC

WASHINGTON, DC–Last month the Federal Reserve Bank noted, again, that CRE valuations were inflated in its Monetary Policy report to Congress. It said:

Valuation pressures continue to be elevated across a range of asset classes, including equities and commercial real estate. Over the second half of 2017, valuation pressures edged up from already elevated levels. In general, valuations are higher than would be expected based solely on the current level of longer-term Treasury yields.

But a case can be made that valuations are not necessarily at peak pricing . That is, at least, Integra Realty Resources Chairman Anthony M. Graziano’s view of the market.

He is not, he tells GlobeSt.com, dismissing the Fed’s statement. “I think they are saying it because they are cautioning banks that the industry is late cycle and I think that is prudent for them to do. But from a valuation perspective and based on the deals that are getting done, there hasn’t been a big swing or jump in capitalization or yield rate expectations. We are starting to see equity yields nudge up, but it’s not stopping money from coming in.”

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Erika Morphy

Erika Morphy

Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.

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