Today Randy is sitting on his deck looking beyond the lake at the melting snow-covered peaks of Colorado and contemplating change. He is contemplating arbitrage: The simultaneous purchase and sale of an asset in order to profit from a difference in the price. Market inefficiencies create arbitrage opportunities, which in turn ensure that prices do not deviate substantially from fair value for long periods of time.

We know that economic shocks continually roil markets. Markets revert to equilibrium, albeit at varying speeds of adjustment. Capital will flow to eliminate arbitrage opportunities and equate risk-adjusted returns across asset classes and, by implication, across property classes and cities. By implication, there should be no long-run, sustainable, risk-adjusted premium associated with gateway cities, large buildings, new buildings, core buildings, supply-side constraints or fast-growing cities, but investors act as if there are.

We focus on core