Tralee Capital Partners, LLC
7400 East Orchard Road
Suite 250 South
Greenwood Village, CO 80111
p > 303.857.5673
p > 303.857.5676
6445 Powers Ferry Road, Suite 300
Atlanta, GA 30339
p > 770-330-0917
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Market Commentary
- Overall, the US commercial real estate market is still richly valued and priced for perfection.
- Values have been based on debt induced speculation. Cheap capital and extremely lax underwriting assumptions have dominated the market since 2003.
- Over the past 5 years all classes of commercial real estate have been profitable due to declining interest rates and the related decline in cap rates.
- So far, there have been few failures throughout all commercial asset classes.
- There has been virtually no risk premium for inferior locations, products, markets or sponsors.
- The majority of the commercial transactions have been based on extremely aggressive NOI projections, a growing economy and unrealistic acquisition & refinance debt structures (both on terms and LTV).
- Since 2003, almost all commercial real estate appreciation has been the result of declining cap rates. Source: Torto Wheaton
- Cash returns have been completely discarded. Most transactions have been done on I/O debt and a negative arbitrage basis to normalized operating cash flow. Buyers have speculated that the perpetual increase in values would more than offset any negative cash flow in order to deliver investors a strong IRR return.
- The onset of the Fall 2007 credit crunch and the related implosion of the CMBS market has materially changed the game for commercial real estate investing.
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