Do Medical Real Estate Prices have Room to Run?
We recently wrote about the fact that Medical Office prices are trending near all time highs. Given this fact as well as the sentiment that most economists believe interest rates will begin to rise off low levels later this year, it would be reasonable to assume that prices are in for slower growth or even declines as we look ahead. It makes sense, right? Not so, argued Dr. Peter Linneman of Lineman Associates in a recent Revista webcast. During the webcast, Dr. Linneman pointed out that were are really in the very beginning of a new upward trend in the commercial real estate (CRE) lending cycle. He said that if you look back at these cycles (see image below), you can see that CRE lending is cyclical and that each cycle outruns and outlasts the overall economy. In fact, during the 3 most recent up cycles, CRE loan growth has exceeded GDP growth by measures of 25.8% (during 1969 to 1974), 44.1% (from 1981 to 1988), and 89.4% (from 1997 to 2009). Dr. Linneman went on to explain that as lending increases, more money will be chasing roughly the same stock of assets (properties). He argued that this will increase CRE prices during this cycle despite the fact that interest rates may be rising. Dr. Linneman said that as interest rates go up the incentive to borrow goes down, but the incentive to lend goes up. He said this could be seen in the form of higher LTVs and relatively better terms. Revista subscribers can access the replay of Dr. Linneman’s webcast. To sign up for a subscription please visit http://revistamed.com/store/compare or contact us at (443) 949-8794. Dr. Linneman can be reached at www.linnemanassociates.com.