the-commercial-investor.com

2008 is the “year of the Bubbles bursting”. Fortunately there appears to be an island in this Bubble bath… sort of like your old friend the Rubber Ducky smiling and bobbing above the foam.

We’ve seen commodity Bubbles pop, stock Bubbles lose air, real estate Bubbles explode and worldwide leverage Bubbles crash in a firestorm of de-leveraging.
Here the key steps to a Bubble:
- An extended period of overvaluation — investors are resolutely focused not on the assets intrinsic value, but only on its resale value
- Overvaluation drives huge demand
Overvaluation and demand drives overproduction of what is actually unneeded inventory
- Even your taxi driver is investing in the Bubble asset at the Bubble’s peak
- Everybody is happy because, “this time it’s different.”

Then comes the Bursting of the Bubble.
The “POP” wouldn’t be nearly so bad without the overproduction of the Bubble asset as the Bubble was growing.
Now with loads of inventory on hand, the bursting of the Bubble is especially painful. Just when you do like to sell, you find that the market is flooded not only with sellers but also with new product coming online.

There are signs that certain sectors of the Commercial Real Estate Market may be experiencing that Bubble right now

You can hear the air leaking from the Retail Sector. I’ve written articles about massive retail overbuilding in the past.  Now that Bubble’s looks like it’s getting ready to pop … driven by the recession in our national economy.
 

Fortunately, Multifamily Housing appears to be both escaping the Bubble and avoiding overbuilding. 
 

Here are two articles from this week proving that point.
Apartments only Sector not OverSupplied – Multi-Housing News 10/24

Multi-Family Housing Starts Predicted 6% Decline in 2009 — Multi-Housing News 10/27

This is good news if you’re buying existing apartment buildings.  In most markets there does not appear to be an oversupply of new units coming on the market will depress your rent rates.  Multifamily is the only commercial sector that seems to have stability at this point and is not in danger of becoming the next Bubble. 

We are actually predicting an increase in Multifamily transactions in the first quarter of 2009 as the lending markets return more to normal functioning.  There are plenty of distressed Multifamily owners out there that have been eager to sell for months.  Once loans become available those complexes will move.

We are recommending that our Mentor Students avoid the Bubble traps out there and focus almost exclusively on Multifamily for the foreseeable future.

Watch Out:
Be careful in those areas of the country where there is such a flood of new single-family housing available for rent that it’s actually driving up vacancy rates on Multifamily.  Internet available information on foreclosures and calls to local investment clubs will allow you to detect these areas easily and quickly.

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