Finally, Reality Sets In

Implications: With extensive anecdotal evidence from retail real estate  brokers around the country who are bemoaning their lack of action, this article attempts to depict what's behind the almost moribund market for retail properties.  As usual, this reporter who frequently writes for one of the industry trade journals, gets it wrong.  Instead of pointing a finger at the true underlying cause of the virtual halt in investment sales, she simply collects and echoes the complaints of brokers who look no further than the last excuse they heard from their prospective buyer or seller.   Consequently the article does little to help the GLG News reader understand what is really going on in the industry.

Analysis: It should be no surprise to regular readers of GLG News that many industry insiders have long believed that there was far too much "dumb money" at unbelievable interest rates, chasing far too few deals. 

The credit crunch has dried up the flood of low interest dumb money and those who took advantage of this "once-in-a-lifetime" flood of money are now having difficulty adjusting to a more normal set of market conditions requiring reasonable amounts of equity, reasonable rates of interest and reasonable rates of return. 

The article does a pretty good job of pointing out that institutional sellers are quicker to realize that they have to expect discounts.  These sellers of class-B and class-C properties are experiencing a rapid increase in cap rates from the unrealistically low 5 to 6% to upwards of 7% on freestanding single tenant properties and over 9% on strip shopping centers in smaller markets.

The problem with the market seems to be that these institutional sellers are the ones who, for the most part, do not have to sell and can comfortably hold onto their overpriced , low return properties till they can decide how best to proceed. It is the private investor, who has trouble meeting their debt obligations and/or planned on a quick refinancing to somehow make sense of the ridiculous prices or exceptionally low cap rates they bargained for, that is the cause of all the moaning and complaining about the lack of a fluid market to bail them out. 

If this sounds similar to the complaints rampant in the single family housing sector, it is because the same rules of basic economics are at work in both arenas.

This writer expects to see many more articles in business publications talk about the mysteries of the disappearance of an orderly market for retail real estate.  Readers of GLG News will be able to congratulate themselves for having seen the "big picture" and will be able to ignore them, secure in the knowledge that they read the real reasons here first.