Bubble or recovery?

By Candace Taylor | October 18, 2010 10:30AM

As restless investors pounce on limited NYC inventory, prices rise artificially

From the October issue: As investors grow increasingly anxious to deploy the “dry powder” they’ve stockpiled to buy distressed assets, experts say signs of a new real estate bubble are appearing. That may sound counterintuitive, given the still-recovering state of the market. But investors spent much of 2009 gathering vast sums of capital for distressed assets, only to have it lie fallow in a still-frozen market. Now that deal velocity is finally starting to increase, experts say investors are feeling pressure to spend their cash. That means prices for desirable assets are rising amid fierce competition for the still-small number of available deals. While some experts see these purchases as a sign of a recovery, others worry that prices are artificially inflated because investors are not basing the prices they’re paying on current conditions. Instead, they’re agreeing to prices based on the assumption that the market will improve and their properties will start generating more income later. [more]