Yet as money swells on the equity side, it is not being matched by broad-based interest in the debt capital markets. As a result, while equity interest in real estate is growing, the overall conservativism in the lending markets remains, and capital for debt financing remains highly stratified and particular. To the extent that financing is available, almost exclusively for stabilized assets, pricing is very attractive. However, it is not broad based. It is not available for everyone, and it is not coming from everyone. A bank may like a deal one day and not the next.
This imbalance between debt and equity clearly points to continued deleveraging in the real estate markets. Only well-heeled investors with access to cash will successfully pursue opportunities. Those investors are seeking stabilized properties regardless of asset type. On the other end of the spectrum, risk trades remain limited. Turnaround stories by companies involved in opportunistic investments are tepid in conjunction with the generally weak economic rebound.
That being said, we continue to see evidence of improving corporate profitability, which is generating additional market recovery in the office and industrial sectors. Those of us who do focus on value-add projects recognize that the right opportunity at the right price can still be found. This time around, knowing it when you see it is far more difficult.
For example, last year our firm re-acquired 399 Jefferson Road, a 180,000-square-
Within months, we leased 85,000 square feet there, to Pinnacle Foods Group, LLC. The firm recently expanded, adding another 11,000 square feet to its commitment, and we are in active negotiations for the balance of the building.
The bottom line remains that opportunities always exist. The landscape is continually changing, and those of us who want to be involved may have to sit patiently in traffic, changing lanes waiting for a shift in flow to rapidly move ahead.
At the same time, we need to make some adjustments to our new reality. Slow economic growth, lack of broad-based debt capital and competition in the equity space all are combining for moderated returns. As such, we need to get comfortable with a new normal for investment returns. These numbers won't touch what we were seeing prior to the market crash, but, in relative terms, real estate will continue to be a pretty good investment.
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About Prism Capital Partners, LLC: Headquartered in Englewood, N.J., Prism Capital Partners is an experienced real estate investment company with a proven track record of creating value through select real estate investments and developments. Geographically focused in the tri-state region of New York, New Jersey and Connecticut, Prism specializes in identifying, acquiring and creating unique, value-added opportunities in the office, retail, industrial and residential sectors. The company invests with institutional and private capital sources that rely on Prism's ability to think "outside the box," and to identify and realize the highest value potential in all sized real estate endeavors. For more information about Prism and its projects, please visit www.prismpartners.net.