So the bubble you are describing is actually an asset bubble - you are referring to the investor pools who want to buy rental properties because it looks so great right now with rents climbing. I do understand that. And it's an especially risky enterprise if they plan to buy NYC coops, where boards could decide to disallow sublets, for instance. I know anecdotal "I know someone who says that" stories are frowned upon here, but guess what? I have heard of investor groups in NYC calling brokers expressing an interest in purchasing coops to invest in as rental properties. The math looks good to them. Tsk, tsk, tsk. There's a reason those coops don't command such great prices. They're not meant to be investment rental properties.

I would have thought many more investors would have bought Harlem/LIC/Astoria/Wburg nondos and zombos and converted them to rentals by now. I have seen some, but not as many as I would have though by now. WHen all the CMBS is due of the next three years, we will see.

Does the math only look good because it looked so bad before? Rentals are still not much higher in real dollars than a decade ago... and while we have come down 20% off peak prices, we're still well above where things were 15-20 years ago.

Investors usually don't look before they jump, most often, off of a cliff

* [Just five years ago, the commercial real estate market was thriving. The delinquency rate on mortgage loans was at a record low, and the volume of new mortgages being sold to investors was at a record high.

Now the first of the mortgages that were securitized in 2007 have started to come due, and it is becoming clear just how bad many of the loans were. The time when investors were most eager to buy turns out to have been the worst time to do so.

Commercial mortgages — unlike residential ones — are seldom issued for periods of longer than 10 years, and often for as little as five. Many require no principal repayments during that period but call for the entire amount to be repaid in a balloon payment at the end of the loan. So it can be at maturity when the bad news arrives.

“Only 28 percent of the loans from 2007 due to mature in 2012 managed to pay off in full,” said Manus Clancy, the senior managing director at Trepp L.L.C., which monitors the commercial mortgage market.

Other loans in those securitizations were for seven or 10 years, so new waves of losses may arrive in 2014 and again in 2017. ]

www.nytimes.com/2012/07/06/business/bad-mortgage-loans-burn-investors-and-tenants-high-and-low-finance.html?

And

* [Blackstone to Shed Office Empire]

http://professional.wsj.com/article/SB10001424052702303292204577518810593701118.html?

If commercial RE is on the decline again, which is tightly correlated to the economy, I'm sure residential RE, regardless whether rental or sales, will do EXTREMELY WELL.

smwhls - I think the reason some investors may think buying rental properties looks good is that they are not planning to borrow, and they are not planning to buy commercial real estate, and they are not planning to buy high-end condo/shmondos - the anecdotal situation I referred to is similar to what I saw happen in the '90s: buy when the prices have plunged (prices have plunged on coops in the outer boroughs, if not in Manhattan), rent, and then sell off decades later. I think the attractive thing to those investors is cash flow, when they do not see other ways of having income generated by investments in anything else. Whether they are right or wrong is another question, but, although I think it's all things considered far more risky than most people see, the biggy here is the low interest rate environment. Most people here discuss cap rates and equities. There are people who just want an immediate return on cash. To buy an apartment for $100K to $200K cash may look good to them as opposed to - not the stock market - bank CDs, Treasuries. Once upon a time, you could always park cash in safe places and earn over 5% a year. I'm not saying I agree with this mentality, but I think I understand it - maintenance is $10,000 a year; rent is $18,000 a year; $200,000 cash looks like it could throw off 4%. Snort and laugh, everyone, but .... savings accounts pay 0%. Stocks?