Opinion: Prime prices only for prime property

There are several cash rich funds willing to pay top prices for a prime deal (building + structure) but anything less than prime forces a major discount. Oasis, in Prague, is somewhere in the middle between prime and secondary, in the minds of most institutional people.

There are a couple prime deals (off-market) that are being discussed below a 7 percent yield and also a handful of other deals that might be at the 8.5 to 10 percent level but are in no way prime property or structure.

The market has become very much divergent and the risk avoidance mentality will push prime yields back down a little after the crisis-fueled over-correction. For the risk takers there are very sweet cash flow deals out there but they require serious courage and a healthy amount of equity on hand.

Brent Watkins (Partner, Private Property)

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6 responses to “Opinion: Prime prices only for prime property

  1. But the question is…who is advising their clients to buy at sub-7% when this is far out of market and there are prime deals to be had at more attractive yields?

  2. Ridiculous.

    Market Deal is any current deal made between prudent acting and informed buyer and seller with neither having extraordinary demands nor external pressures.

    Therefore the deals over past 6-8 months and the few that will go through soon are exactly Market Level for Prime Properties.

  3. Good definition of Market Deal, though that’s not the debate at hand…the point is, what buy-side advisors are perhaps pulling the wool over their clients eyes and advising on buying at sub-7%? Are they more worried about not closing a deal for their own reasons, or should they be thinking of their clients best interest and advising as to what prime opportunities can be had at more attractive yields? In this environment cash is king and if these investors who are pursuing these deals that will, no might, go through walk away, there is nobody else at the table who will sit down at the same pricing…so chip it and get a better deal for the investor, or walk away and get a better deal somewhere else…

  4. Reading your comment, I can only say that you should change your advisor if you are not 100% sure.

    I always have and will continue to stand behind my advice to a client. Client should become repeat customers and this will only work if the client is successful.

    By the way, Initial Yield, as such is really only useful as an indicative or comparable tool. Initial Yield is a static indicator and should be taken in context and evaluated along with a time-related composite like NPV or IRR. Most Investors with portfolios spanning the Euro-Zone are more likely interested in relative cost of the building in the appropriate market and also a Capital Value that is appropriate in a European context.

    In my opinion, Prime Buildings in Prague are still good value when compared to the top 15 European Capitals.

  5. Hi, I’m RICS qualified – what’s a yield?

  6. I think that everything posted made a ton of sense.
    However, think on this, what if you added a little content?
    I am not suggesting your information is not good,
    but suppose you added a title that makes people want more?

    I mean Opinion: Prime prices only for prime property | CIJ Blog is kinda plain.
    You could peek at Yahoo’s home page and see how they create article titles to grab viewers to open the links. You might add a related video or a pic or two to grab people interested about everything’ve written.

    In my opinion, it would bring your website a little livelier.

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