Green Street



GlobeSt: Again The Fed Says CRE Valuations Are Inflated

According to GlobeSt:

Washington, DC–The Federal Reserve has said on a number of occasions that asset valuations, including in the commercial real estate sector, are inflated. It did it again on Friday in its Monetary Policy report that it released to Congress. It wrote:

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.


A Buyer-Seller Disconnect

It is also important to note that the Fed has signaled that the rate increases — however many there are — will happen gradually, which likely means that any influence on valuations will be subtle. In the meantime there are many effects that an inflated valuation of real estate assets can have on the market and the immediate impact has been a disconnect between buyers and sellers on pricing — a disconnect that has been underway for some time.

Essentially buyers and sellers are at loggerheads about pricing, Green Street Advisors analyst Joi Mar told in an earlier interview.

“Investors are weighing record prices, slowing property fundamentals and Fed tightening,” she says. And of course, there are also structural changes underway in some asset classes such as retail, she adds.


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