Gordon’s Growth Model and Capitalization Rates

Baseball legend Casey Stengel said, “Never make predictions, especially about the future.” You are paid the big bucks because investment valuations are based on the present value of future cash flows and you have to be prophetic. Forecasting cash flow growth is a highly problematic, albeit essential, component of valuing a property.  More >

GlobeSt.Com: Six Questions for Odessa’s Pryor

NEW YORK CITY-The newest Thought Leader at ALM's Real Estate Media Group is Dan Pryor, a partner at locally based Odessa Realty Investments. A 25-year veteran of the industry, Pryor's blog Commercial Property Advisor will launch Aug. 2 and will focus on a variety of topics revolving around investment sales. More >

Where's Waldo?

Profitable commercial real estate (CRE) investing is hugely dependent on not stampeding with the Wall Street herd. To wit, have you seen the current frenzy in the multifamily sector with “B” assets in select cities trading in the 4sand 5s. As momentum investing is demonstrably not profitable in CRE, it is essential to differentiate your acquisition strategy in order to acquire assets at fair valuations. Conventional wisdom and intelligent investing rarely are synonymous. More >

Liquidity Reigns

Was anyone else blown away by the twin headlines saying that the commercial property price index was up A) 30% and B) 4%? Both headlines were correct as the quoted indexes track different segments of the U.S. national commercial real estate market. One tracks values of institutional grade assets in major public REITS whereas the other better represents the “total market”. The big question is whether the increase in underlying values of REIT portfolios indicates that you might see a similar pop in the broader market?  More >

The Return of Jason

Thinking about a four hundred year history of speculative investment bubbles reminds me that I am only dumb when I fail to learn from my mistakes. Which leads me to ask whether you’ve been puzzled about the return of capitalization rates with five handles and (it pains us to say) four handles? Despite our healthy skepticism about low cap rates, we recognize that some of these aggressively priced transactions may make sense for certain investors. More >

Risk Adjusted Yield and Valuing CRE

The valuation bubble in commercial real estate made it all too apparent that many industry participants either did not have a good grasp of fundamental real estate valuation techniques or chose to ignore the basic precepts of smart investing.  This type of speculative investing that occurred during 2005 to 2007 and continues in some sectors affects you directly as you will often be outbid on commercial real estate assets.  Proper valuation begins with an understanding of the appropriate Risk Adjusted Yield you should be seeking in a real estate investment. More >

Real Estate and Inflation

The Federal Reserve, led by Ben Bernanke, is continuing the monetization of United States government debt.  This massive expansion of the money supply to feed the soaring deficit of the U.S. government will create a significant inflationary economic environment. As commercial real estate investors, we see the threat of inflation as a highly compelling factor to acquire income generating real estate assets.We discuss how and why real estate performs well during inflationary periods, and include a financial analysis.  More >

Government Deficits and Quantitative Easing

Federal, state and local government deficits and accompanying debt levels are at the trauma level, beyond comprehension to most Americans. The Federal Reserve is continuing the massive monetization of United States government debt via quantitative easing. This expansion of the money supply will create a significant inflationary economic environment.  Real estate is the leading asset class in which to be invested during inflationary times. More >

Peeling the Onion on Capitalization Rates

The compression in cap rates during the 2005-2007 commercial real estate bubble led to miscalculations on the part of many sophisticated investors in regards to exit valuations. We quantitatively demonstrate, an increase in capitalization rates or overly optimistic forecasts regarding growth in cash flow will have significant detrimental effects on exit valuations and projected internal rates of returns.  Fundamental valuation begins with an understanding of the percentage return you should be seeking in a real estate asset, given the risks associated with that investment. More >

A Contrarian View – Investing in Office

Deploying capital in the commercial real estate industry in the current economy poses a challenge. Where and in what asset classes can you currently deploy capital that generates sufficient risk adjusted yield and is less likely to be squeezed by rising cap rates? The Wall Street herd is currently enamored with multifamily assets resulting in surprisingly high valuations. In this article we explore the counter-intuitive arguments for investing in office assets despite adverse economic conditions. More >

Profit Incentives at the Property Level

Properly motivating employees working at an income producing property to increase net operating income can have a tremendous impact on the valuation of the property. We often utilize a unique profit share plan that creates strong incentives for increasing cash flow while guarding against ploys that “game the system.”  The program’s ability to boost NOI makes it particularly advantageous during the 12 to 24 months leading up to the sale of a property. More >