Joe Berko, President of Berko & Associates, Makes the Case for Mitigating Risk

November 01, 2017

Mitigating risk is on Joe Berko’s mind. With cap rates being so compressed, he sees prices remaining steady and financing fundamentals becoming a little more conservative. The U.S. is still a real estate safe haven and cash is coming here, but not as freely as it used to from places like China, Russia and South America. Because many parties are taking a hold position, Joe suggests strategies like considering short-term bridge financing and not overleveraging in order to get a solid yield.


The last two-year period has been very difficult for investors looking to buy. While prices have pretty much kept steady,  the rest of the fundamentals, such as money and banking, have shrunk back and became a little bit more conservative and probably rightfully so.

So a lot of our investors are actually looking to put money … alternative financing is now becoming more of the norm because it’s very hard to buy because CAP rates are so compressed. There’s still a very wide gap between bids and ask. Sellers are sitting on properties and are still asking for prices that are not as attainable under the current environment.

It’s very hard to say what will come, but definitely the next 24 months are going to be very interesting both politically and fundamental-wise as to where cash is coming in. We’ve seen some constraint from places like China where capital is not as freely coming in as once before – the same goes for places like Russia and South America. A lot of the flight of capital that was seeking safety is now finding it extremely hard or more difficult than a few years ago to enter the U.S. market. The United States is still a safe haven: things are transparent, and the politics and business philosophy as a whole say that this is still a place to put money.

New York is still one of the first stops for foreign capital. So how will that affect the industry? How will the banking environment and additional regulation that’s been going on for the last few years impact things? What we’re seeing more so today is groups that have not traditionally performed as lenders or as alternative lenders and are seeing their yields through that type of transaction. So instead of buying, they basically are providing the type of capital needed for investors who acquire assets. So sort of holding a position and taking less of a risk and also being in a much better cost basis than acquiring opportunities and acquiring properties. I think that’s an area that will continue to flourish as more banks are scaling back and providing less capital. More of the MES financing, more of the short-term bridge financing is becoming the place to be right now. So long as you don’t over-leverage or over-capitalize, I think it’s prudent to take a very safe position in order to perform well to get a very solid yield and not to take on the additional risk.

Have Questions or Comments?

If you have any questions, we'd like to hear from you.

More in This Series

Kenneth Weissenberg, Chair of Real Estate Services EisnerAmper, Welcomes You

The Real Estate Summit provides a forum for real estate leaders to learn what’s going on today and what the future may hold as well as make valuable, lifelong connections. Attendees commented that the event greatly influenced their real estate strategy.

Jason Ellis, Senior Company Counsel Staples Inc., Talks Retail

The real estate 'secret sauce' of the right number of stores with the right square footage in the right markets is a recipe that is evolving faster than ever. How do 21st century retailers find that proper equilibrium.

David Gilbert, President and CIO at Clarion Partners LLC, Looks at Millennials

David talks about where the Millennial socio-economic group is now and where they might want to raise a family. Could an exodus to the suburbs - driven by Millennials’ search for good school systems - be on the horizon?

Paul Homsy, Principal at Noonmark Capital Partners LLC, Discusses Gulf State Investors

Paul gets inside the mind of Middle Eastern real estate investors. He notes that their goals of capital appreciation and cash yield are driving them to invest in secondary and tertiary U.S. cities such as Atlanta, Dallas and Denver.

Jeffrey Moerdler, Real Estate Partner at Mintz Levin, Tackles Security Issues

Former Commissioner of the Port Authority of NY and NJ, Jeffrey Moerdler focuses on the costly but necessary security issues surrounding both developing and operating properties as well as being realistic and proactive with security.

Your Passport to the Global Leaders in Real Estate Summit

Get a taste of what you’ll learn from our Global Leaders in Real Estate Summit video series. Our thought leaders talk about everything real estate, including security, Millennials, global investment, mitigating risk and more.