Commercial Real Estate Bubble?

 

I often get asked “How are things going in the Commercial Real Estate market“? This is a tough question to answer. Yes, many people and many aspects of CRE is doing very well. However, a dark cloud is growing in the distance as the apartment building boom continues, institutional grade investment prices rise, and cap rates compress. My opinion is that we are nearing or already in a bubble…and I am not alone. U.S. Bancorp CEO Richard Davis “wants to hold the line on how much exposure the bank has to a market that he says often carries too much risk”. The key in this statement is too much risk with returns not justifying that risk. Low interest rates and a flood of cash being pumped into the system have made commercial real estate look attractive compared with bonds and other assets and have “drawn comparisons to the delirious boom of the mid-2000s” (Source WSJ). So where do we go from here? I don’t the answer. All I know is, we very rarely learn from past mistakes.

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