Real Estate Premium Near Record to U.S. Bonds Signals Time to Buy Property – Bloomberg
01 Sep 2010 |
Posted by griffin | 1 Comment.
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U.S. commercial real estate yields are near the highest level relative to Treasury bonds on record, a signal to some investors it’s time to buy property.
Capitalization rates, a measure of real estate yields, averaged 7.22 percent in the second quarter, based on an index calculated by the National Council of Real Estate Investment Fiduciaries. That was 429 basis points, or 4.29 percentage points, higher than the yield on 10-year government bonds as of June 30, according to data compiled by Bloomberg. It’s about 475 basis points higher than Treasury yields as of yesterday.
That spread is near the record 539 basis points in the first quarter of 2009, when the U.S. was mired in the worst of the financial crisis and property prices sank. Risk-averse investors are seeking the highest-quality office towers, hotels and apartments as the gap widens, according to Nori Gerardo Lietz, partner and chief strategist for private real estate at Partners Group AG in San Francisco.
“The data indicate that real estate is poised for a rebound,” said Gerardo Lietz, who advises pension funds on property investments.
Some buyers already are acquiring buildings at lower cap rates, which move inversely to price. In June, a group of South Korean pension fund investors bought the 33-story Wells Fargo Building in San Francisco for $333 million from Principal Financial Group Inc. in one of the largest transactions in the second quarter, according to Real Capital Analytics Inc., a property research firm. The office tower sold at a cap rate of about 7 percent, said Goodwin Gaw, the developer who helped broker on the deal.
New York Rates
In Manhattan, RXR Realty LLC bought a stake in 340 Madison Ave., a 22-story office building, at a cap rate of 6 percent, according to New York-based Real Capital. Cap rates are calculated by dividing net operating income by purchase price, so the lower the rate, the higher the value of the property, and vice versa.
