Commercial real estate buyers, a bit like home shoppers, may have pushed prices up too fast.

Homebuyers have been pilloried for their aggressive buying habits in recent years. And recent sluggishness in the housing market may be fair payback for previous overindulgences.

Big shot investors, meanwhile, have been having their own feeding frenzy on commercial real estate. Recent months have seen billion-dollar deals become routine. Buyers of trophy properties run from established real estate players – including Irvine Co. boss Don Bren – to Wall Street's hyperactive "private equity" pools of cash.

My gosh, Mills Corp.– the financially ailing operator of malls including The Block in Orange – is in play, no less.

I checked in with Mike Kirby, chairman and co-founder of Green Street Advisors in Newport Beach, to see if the big shots may be as out of line as the small fry may have been when it comes to their love affair with real estate.

Kirby's firm developed a reputation as one of the top experts in a popular way to play the property game – real estate investment trusts, or REITs. These property managers own everything from apartments to office towers to malls and storage sheds.

"I'm nervous about commercial real estate values, but the case is nowhere as nasty as it's become in housing," Kirby says.

Kirby notes that REITs, for example, have beaten returns of the broad U.S. stock market for seven straight years. REIT prices were up 30-plus percent last year, depending on who's counting. That's why Kirby knows neither commercial real estate nor the REIT niche is a bargain.

Clearly, investors in today's low interest-rate climate are willing to pay more for assets like real estate that kick out steady income. But the surge in real estate prices pushed the owner's yield on some properties to what Kirby said were "scratch your head" kind of lows.

He thinks the buyout fever in commercial real estate makes some sense, like a deal for debt-riddled Mills – "somebody competent needs to take them over." Other fresh mergers could prove challenging to pencil out.

By his math, REITs trade on Wall Street at prices that are 13 percent above the market value of the assets the REITs own – slightly above the 7 percent historic level.

To Kirby, that's not the worry.

"The real question," he says. "is if the real estate's overpriced. That's tricky."

PARADIGM SHIFT?

It's not just solid economics driving the prices of commercial real estate.

Kirby sees investors – both big and small – thinking differently about real estate.

This revised logic created a heavy flow of new cash into property investments, which explains a good chunk of what Kirby would otherwise see as problematic pricing for commercial properties.

One must figure out if, as Kirby puts it, "there has been a secular change in pricing and does such a change make sense?"

Secular, as in a long-term, evolutionary switch in the investor psyche of institutions – from pension plans to foundations to other large diversified pools of savings – and mom and pop savers.

"Institutions of all stripes, whatever flavor you're talking about," Kirby says, "they have all bought into mantra that real estate has a spot in their portfolios."

As for the small fry investor, Kirby has seen an equally "dramatic change," with numerous financial consultants suggesting real estate be a modest but permanent part of individual's asset allocation.

"A real paradigm shift in attitude," Kirby says.

Now Kirby's smart enough to know that you better think long and hard before betting on these kinds of sea changes.

History is filled with huge run-ups in various investments that flopped when investor psyche reversed itself. Yet Kirby believes the argument that real estate's image has been permanently recalibrated in most investors' minds.

"You don't want to make a habit" of calling a paradigm shift, Kirby admits.

But, he adds, "You don't want to be bullheaded about them either."

JOYLESS RETURNS

Don't get Mike Kirby wrong.

He's not saying that commercial real estate's going to outperform forever. In fact, he doesn't think most folks will get rich any year soon in this sector.

Commercial real estate is especially vulnerable to higher interest rates or a loss of investor appetite for riskier assets. Both would make real estate's current yields – historically meager – look very unappealing.

Kirby says numerous real estate investors are making deals today that they hope will deliver earnings of 7 percent a year. That's down from 10 percent goals of just a few years ago – and not much above returns on corporate bonds that, in theory, come with fewer risks.

And despite slimmed expectations, Kirby thinks today's real estate investor may be overly optimistic. He sees returns "anemic for many, many years to come."

Not that he sees any grand collapse.

"No bubble," Kirby insists. But, commercial real estate has "gotten to a point where people won't enjoy their (future) returns."

Perhaps the big shots did make better real estate bets. But they, too, got caught up in a buying frenzy – and they'll pay a price for their exuberance.

But it may be a smaller toll than mom and pop's tab.

Here's a few property stocks from Green Street Advisors "buy list" in various real estate niches:

Retail: Taubman Centers (NYSE symbol: TCO), Simon Property Group (NYSE symbol: SPG), Regency Centers (NYSE symbol: REG) Hotels: Starwood(NYSE symbol: HOT) Apartments: Archstone-Smith (NYSE symbol: ASN) Office: SL Green Realty (NYSE symbol: SLG), Douglas Emmett (NYSE symbol: DEI), Maguire Properties (NYSE symbol: MPG) Medical: Nationwide Health Properties (NYSE symbol: NHP)

Contact the writer: 949-459-3569 or jlansner@ocregister.com