This Time is Different | FTI Consulting

This Time is Different

A combination of three factors makes a real estate investment “attractive in this market”.

Real Estate | Corporate Finance & Restructuring | GLOBEST.COM (Reprint)

January 27, 2017

Buildings in bubble with needle

NEW YORK CITY—A recent article in FTI Consulting’s FTI Journal posed the question, “The state of the US real estate market as an investment vehicle shows eerie similarities to the era before the Great Recession. Should we be worried?” The firm’s Michael P. Hedden, managing director with FTI’s real estate solutions group, provided assurances that this wasn’t the case. “While we are at the same point in time on the trend curve for sales volume and capitalization rates,” he said, “the facts and circumstances indicate solid fundamentals and abundant liquidity are being strategically deployed.” spoke with Hedden for his insights on why it’s different this time around, what lessons investors learned from the Great Recession and why the presidential election won’t make a significant impact in the near term. Compared to the run-up to the capital markets crisis of the previous cycle, what are some similarities and differences?

Michael P. Hedden: The similarities that are pointed out in the press and in some of the data are the continuing increase in pricing for core assets in gateway markets, and the compression of cap rates, resulting in price levels that exceed what we saw in the 2007 time frame. Because of the fear and the memories of market participants from the precipitous crash that occurred in 2008 as part of the Great Recession, questions are raised by participants and the media as to whether we would expect another repricing of these assets in the market. Those would be the similarities.

I see several distinctions in the economy today, and in the real estate market in particular, that would suggest that these times are different and that there is more awareness of the recent past and what caused that run-up in pricing. That’s coupled with a new normal in terms of economic fundamentals.

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