Bob Drake. bdrake@uscommunities.com
Liquidity, as measured by the rate of turnover of the property market, is not a function of MSA size. Gateway cities provide no liquidity advantage, have higher price volatility, and deliver over the long-haul lower risk-adjusted returns. New supply is less price elastic, which accentuates the effects of short-term demand volatility. Cap rates are higher in many non-gateway cities because AUM growth-hungry investors just prefer larger cities, even at the expense of leaving value on the table. Liquidity (and diversification) benefits vanish during a Crash. Diversification is nowhere to be found when needed the most.
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