October 18, 2010

The VCU Real Estate Conference had a good group for a round table discussion including higher leverage debt, equity, life-insurance company and agency representation.  A few interesting points were brought up by the group while answering questions about liquidity in the market.  Liquidity has clearly returned to the prime markets and prime assets are trading.  The point was made that in times of uncertainty, there is a premium paid for the main and main location (for certainty).  That is why we are seeing so much activity at dizzying prices for prime assets – someone even described the frenzy for assets in DC as another “bubble”.  The other area of activity is with really illiquid assets like land and unanchored retail where lenders (who are able) are dumping these assets at huge discounts.  Assets that are not either prime or dramatically discounted, which is to say the vast majority of assets out there, are expecting to see liquidity again once money gets more comfortable that the economy is headed in the right direction. 

Another interesting point was made that in times like this where there is uncertainty in the market, institutions don’t generally win much business.  There are too many questions to answer inside an institution to get a deal approved and that makes the likely winner on deals to be the entrepreneurial players with equity.   So if you are an entrepreneur looking to make a fortune in this downturn, you should avoid the liquidity of the prime assets and look for areas that have no liquidity at the moment, but should at some point down the road…easier said than done!

Andrew R. Little