Further Indicators That it's Time to Buy?

The Analysis and Opinion

The evidence is compelling and the research is strong. This great article from the National Real Estate Investor, gives some really good background on the spread between US 10 year Treasury yields and historic cap rates.

As of the second quarter of 2009, the cap rate spread ... has widened to more than 400 basis points. We believe this trend reflects increased risk-aversion among investors, who are pricing in a negative outlook for real estate.

During the recession of the early 2000s, cap rate spreads also rose to more than 400 basis points, making real estate appear undervalued relative to Treasuries. We believe that entering the real estate market during such periods of above-average spreads may be advantageous to long-term investors.

When most investors are taking a wait and see approach to investing, it's often the right time for those with the vision to start investing. And there is evidence that you should start soon:

These periods of high cap rates and spreads often do not last long. From 2003 to 2007, spreads narrowed significantly as the economy recovered and property values appreciated.

As the economy begins to rebound and real estate fundamentals improve, investors will likely become less risk-averse. We believe it is likely that more capital will flow into the sector in 2010. Consequently, we expect cap rate spreads to eventually narrow gradually, reverting toward the mean, and repeating the cycle.

My thanks to the Dirt Lawyer, David Stejkowski at The Dirt Lawyer's Blog for finding and sharing this. You should consider following David on Twitter: @DirtLawyer for insightful and timely posts on commercial real estate topics.

Other Indicators

via Retail Traffic today:

Bill Rudin, Rudin Management, and Steven Roth, Vornado Realty Trust, talk about their views on the real estate market - where we are and where we're going.

Steven Roth, "We're optimistic that there things, you know, moving in the right direction."

Bill Rudin talks about wanting tenants to sign short term leases, 2 years or so, so that they can play the market as it goes back up i.e. increasing rents along with strengthening markets vs. the tenants who want to lock in now for longer term leases, 10-20 years, now because there is growing sentiment that this is the bottom and they want to take advantage of that.

Really good take on the US commercial real estate market. Thanks to Retail Traffic for finding and posting this video.