Real Estate Bubble Not Burst Yet

There has been a great deal of speculation recently that the real estate boom may be about to go bust, but participants in the Institutional Investor Forum sponsored by the National Association of Real Estate Investment Trusts (NAREIT) June 8 through 10 at New York City's famed Waldorf-Astoria identified a number of bright spots on the horizon.

Michael Grupe, NAREIT's senior VP for research and investor outreach, kicked off the conference by observing that no one who has invested in real estate in the last five years has lost money. He also noted that through the end of May, REITs were relatively flat –up 0.2% for the period–while the S&P 500 and other stock indexes all showed negative numbers.

Not surprisingly, interest rates were addressed by a number of speakers. In a session titled, "The Value Proposition Today," Richard Saltzman, president of Colony Capital, LLC in Los Angeles, observed that "investing is all about relatives, not absolutes," and that if market fundamentals continue to improve and rates remain benign, that the environment for real estate investors should remain healthy. As part of the same panel discussion, Mike Kirby, director of research for Green Street Advisors in Newport Beach, California, observed that the historic low cost of capital has caused some buyers to improperly assess the potential risks, because they "can borrow about 95% of the acquisition cost at low interest."