Is ‘Bad’ Really Priced Into the Market?

Last Saturday's New York Times article titled "Real Estate Looks Risky, but Less So for Bargain Hunters," which takes a look at the current climate of commercial real estate investing, posed an interesting question in my mind.

"‘The trick with investing in commercial real estate is not knowing if something is bad, but knowing if that ‘bad' is priced in,' said David Frame, global head of alternative investments at J.P. Morgan Private Bank."

Is the ‘bad' or the low of the market currently priced into transactions? Transactions before the height of the commercial real estate market, which were predicated upon continuously rising values, certainly had the perceived ‘good' priced in. However, as the tide turned, many high profile properties that had the ‘good' priced into them never reached the values that their prices were based upon. The list of buildings that were purchased for staggering amounts and turned out to possess only a fraction of their perceived value is, not surprisingly, expansive. Although hindsight is always 20/20, we can see from the fallout of the commercial real estate market in the past few years that ‘good' or ‘bad' are not always truly priced into transactions.

So, do you think that the ‘bad' is priced into transactions right now? Let me know your thoughts in the comments section.