{"id":1004761980,"date":"2025-06-18T08:34:16","date_gmt":"2025-06-18T16:34:16","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004761980"},"modified":"2025-06-18T09:57:12","modified_gmt":"2025-06-18T17:57:12","slug":"beating-the-dutch-auction-fallacy","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/beating-the-dutch-auction-fallacy\/","title":{"rendered":"Beating the Dutch Auction Fallacy"},"content":{"rendered":"
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\"Jonathan
Jonathan Hipp<\/figcaption><\/figure><\/div>\n\n\n

When times are uncertain\u2014and indeed, there’s uncertainty today due to changes in trade policy and geopolitical circumstances\u2014investors can often draw comfort from a great deal.<\/p>\n\n\n\n

And great deals look as though they’re on the way, as evidenced by recent data. That brings temptation to wait for even lower prices: Get the most for your capital, strengthen net operating income, and increase return on investment and internal rate of return.<\/p>\n\n\n

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READ MORE:<\/strong> How Non-Financial Data’s Shaping the Future<\/a><\/p>\n

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However, what sounds like a smart strategy could be the opposite, bringing the risk of the Dutch auction fallacy\u2014or as many of us know, the potential misstep of overbidding in a Dutch auction based on the expectation that the price will keep dropping. For many investors, there’s a better option through net lease.<\/p>\n

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What happened to CRE prices in April<\/strong><\/h2>\n

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All major commercial property types saw an annual price decline<\/a> in April, according to an MSCI report in late May. That might sound surprising, given there\u2019s been a lot of news about prices increasing. The industry has been looking for valuations to stop climbing out of a pit.<\/p>\n

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However, the growth rates of price change have been moving downward. Technically, the second derivative has been negative since 2022. When that happens, the first derivative\u2014in this case, price growth\u2014eventually falls below zero; values get smaller. The month-over-month price drops have run between 0.5% for industrial and 12.1% for multifamily.<\/p>\n

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In MSCI\u2019s graph, the segment from 2022 through April looks similar to conditions in 2008, at the opening of the global financial crisis.<\/p>\n

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Waiting for the distress<\/strong><\/h2>\n

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If prices were to begin falling again, a natural reaction would be to consider how much they could drop. This is the reaction that has been strong since valuations plunged after the Federal Reserve pushed up interest rates to battle inflation. And yet as prices started slipping, there wasn\u2019t a massive rush of capital pouring in to buy properties. Everyone seemed sure that property values would take further hits, increasing the room for everyone to make tidier profits.<\/p>\n

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LIKE THIS CONTENT?<\/strong> Subscribe to the CPE Capital Markets Newsletter<\/a><\/p>\n

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What many people don\u2019t realize is that the conditions are similar to those in a Dutch auction: The auctioneer sets a price and waits for responses. If no one pays the demanded amount, it falls, and there is a new lower price until someone makes the purchase.<\/p>\n

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When many potential buyers keep waiting for a better offer, they fall into what one might call the Dutch auction fallacy. As the price of a property drops, the number of potential buyers grows. As competition rises, the probability of being the winning bidder falls.<\/p>\n

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Take the longer view<\/strong><\/h2>\n

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Chances are you don\u2019t need the lowest possible price for a property, provided you have longer-term goals and are not looking to buy and flip. If your horizon is at least five years, chances are good that falling prices will eventually reverse.<\/p>\n

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More importantly, the right property, when carefully managed, becomes a self-supporting tool. A net lease portfolio, for example, is a set of properties with sufficient net operating income for a strong debt service coverage ratio. Not every net lease property will be a fit, but many will, sustaining the entire enterprise.<\/p>\n

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What do you need to achieve the goal? Vision, discipline, experience\u2014and above all, patience.<\/p>\n

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Jonathan Hipp is principal, capital markets, & head of the U.S. net lease group for\u00a0Avison Young<\/a>.<\/em><\/p>\n

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<\/p>","protected":false},"excerpt":{"rendered":"

Great deals bring temptation to wait for even lower prices. Resist the urge, cautions Avison Young’s Jonathan Hipp.<\/p>\n","protected":false},"author":1126,"featured_media":1004331737,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21780,21825,21684],"tags":[33022,35494],"class_list":["post-1004761980","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business-specialties","category-finance","category-viewpoint","tag-avison-young","tag-jonathan-hipp"],"acf":[],"yoast_head":"\nBeating the Dutch Auction Fallacy - Commercial Property Executive<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.commercialsearch.com\/news\/beating-the-dutch-auction-fallacy\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Beating the Dutch Auction Fallacy\" \/>\n<meta property=\"og:description\" content=\"Great deals bring temptation to wait for even lower prices. 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