Boomism

This entire article from Dana Rubinstein in the New York Observer is worth reading, but I wanted to stress the quotes from Jimmy Kuhn, president of the brokerage firm Newmark Knight Frank:

“There already seems to be a lot of capital out there that thinks that just because it cost $1,000 a foot a few years ago that $500 a foot is cheap,” said Mr. Kuhn, referring to office building prices, which, during the heady boom years, routinely exceeded $1,000 a square foot, even, and most egregiously, for a comparatively modest office building in Soho. “There are a lot of people starting again to underwrite office buildings with aggressive projections for growth in rents.”

“The worst invention in real estate history was the project and Argus models that encourage investors to compound growth rates so that the ultimate projected sale makes up the majority of the value. This lesson will never be learned. The great investors like Buffet and others don’t need inflation to bail them out. It’s why large oil companies will buy smaller companies with assets in the ground rather than waiting for oil to reach 150 dollars a barrel. So as in real estate the big money will be in the acquisitions that take advantage of weak borrowers, over leverage, or structural problems rather than buying based on 100 rent expectations that may or may not reach most buildings.”