Emerging Trends 2007
One of the big events at ULI last week--standing room only--was the issuance of the 2007 Emerging Trends in Real Estate Report. Based on surveys taken over the previous summer, the report is usually about six months behind for the markets I work in, but a good way to understand how people are handicapping the prospects of the global property markets.
Some of the more pertinent takeaways:
- Bicoastal preference--New York, SoCal, Washington DC, Seattle and San Francisco are the top five investment markets. The Midwest sags.
- Multifamily preference--rising mortgage rates, expensive housing, and demographic shifts slot this property type back into the pole position.
- Niche Fever--will subside as the stock market and private equity funds provide alternatives for capital that last year looked at condo-hotels, assisted living, and resorts.
Emerging Trends Best Bets for 2007?
- Develop Infill and Mixed Use--in 24 Hour, Coastal, High Tech Centers. Job growth is back in the Silicon Valley and Seattle.
- Focus on Management--no more cap rate compression to bail us out of overpaying for assets. Protect future cash flows by working down expense levels. Use green technology to reduce expense.
- Buy Homebuilder stocks.
- Build Green--reduce costs, and insulate yourself from utility company rate shocks.
- Sell the Dogs--Sellers have the upper hand, but the window is closing.
- Cap rates are anybody's guess...was shooting the breeze with someone from a major apartment investment firm and he was making the case that real estate should be a 4 cap business--25x net income--in the coastal, high barrier to entry markets.