Timing, Timing, Timing Could Have as Big an Impact as Location, Location, Location, According to BNY Mellon Investment Boutique
NEW YORK, October 24, 2013 — Selected secondary markets such as Atlanta and Miami appear to have more potential for private real estate investors than primary markets such as New York, Washington and Boston, which have been the top performers in recent years, according to a study from Siguler Guff & Company, a BNY Mellon investment boutique.*
The report, Why Commercial Real Estate Investors Should Think Timing, Timing, Timing, was written by James Corl, managing director, Siguler Guff.
Real estate values traditionally have been affected by location. While that continues to be the case, Siguler Guff notes the cyclical nature of real estate markets could create arbitrage opportunities between the valuation of a property at the bottom of the market cycle and value of that property at the top of that same cycle.
"While most investors seek increasingly expensive core assets in a handful of locations, they often overlook the opportunities offered by underpriced properties in recovering markets elsewhere," said Corl.
Investors have been driven by fear, looking to buy properties in liquid markets that have done well such as New York, Washington and Boston, the report said. However, investors are realizing they need to look elsewhere as prices rise and inventory shrinks in these markets.
For example, Siguler Guff points to buildings in Atlanta that trade at a nine percent yield versus typical New York buildings trading at a yield of approximately four percent.
"In a year or two, investors are likely to consider places such as Atlanta, where we have bought properties that are being leased up," said Corl. "Warehouses in the U.S. southeast are another area that appears attractive now."
According to Siguler Guff, many investors are avoiding the risks of the past, such as liquidity risk and leasing risk, and are not focused on current risk of valuation. Corl said, "Looking at liquidity and leasing risks makes sense if you look backward at the 2009 pricing shock, but it doesn't protect from the risk of paying too much."
Another area of opportunity cited by Siguler Guff is smaller properties, which the private equity manager said are more likely to be priced inefficiently as they are not as heavily analyzed as larger properties.
Siguler Guff is a multi-strategy private equity investment firm which, together with its affiliates, has over $10.0 billion of assets under management across three lines of business: multi-manager funds, direct investment funds, and separate accounts. Its clients include corporate and public employee benefit plans, endowments, foundations, government agencies, financial institutions, family offices and high net worth individuals. The firm is headquartered in New York and has offices in Boston, Chicago, Moscow, Shanghai, Sao Paulo and a local affiliate office in Mumbai. To learn more about Siguler Guff, please visit www.sigulerguff.com.
*BNY Mellon holds a 20% interest in Siguler Guff & Company, LP and certain related entities (including Siguler Guff Advisers, LLC).
BNY Mellon Investment Management is one of the world's leading investment management organizations and one of the top U.S. wealth managers, with $1.5 trillion in assets under management. It encompasses BNY Mellon's affiliated investment management firms, wealth management services and global distribution companies. More information can be found at www.bnymellon.com.
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