” We are all faced with a series of great opportunities brilliantly disguised as impossible situations” AuntGranny
The forecasts for Commercial/Industrial Real Estate often referred to as CRE, are worse then the scripts for a horror movie.
The experts observe that dozens of large buildings and shopping centers are mostly empty in cities large and small, vacancy rates are high and rising, many supersized mortgages are coming due soon and several big buildings are already on the verge of foreclosure.
Then why are shares of the big real estate trusts or REITs, that own many of the country’s skyscrapers, shopping malls, industrial parks, hospitals, senior housing centers, medical buildings and shopping centers are showing great resilience., and the big-moneyed players chasing Commercial Real Estate? How can this be?
The nearly unanimous skeptics appear to be missing a few key pluses about Commercial Real Estate.
First, as long as the credit market is willing to keep rolling over most property owners’ debts with new low-interest loans or bonds, and as long as their problems can be pushed out to a future point when the U.S. economic recovery finally gets real traction…that alone changes the equation.
Second, bears forget that the real landmark assets in real cities have real value and have truly been crushed in price. If you are the portfolio manager of a large sovereign wealth fund or run a $20 billion portfolio at a big insurance company, you need to buy real, big things at low values to make a difference in your portfolio.
Let me put it this way: Would you rather buy paper shares of a technology company that could lose its innovation edge at any time? Or half a block of Manhattan at a 50% discount? Yeah, me, too.
A person who attended a Goldman Sachs-hosted hedge fund dinner (credit J. Markham) recently….. learned that the big sovereign wealth funds and insurance companies, which had representatives at the dinner, are among the quiet but big bidders for major hunks of prime U.S. real estate through private-equity funds, private transactions and public-equity companies.
They apparently believe that the only real problem with U.S. commercial properties is their underlying high-cost debt. So to the extent that they can take out the debtors with cash, they can wait out the rest of the property recession and be ready for the next upswing. This is the advantage of being well-capitalized and having a 20-year time horizon.
Those who zealously guarded their cash during the recent downturn are themselves helping to lift commercial real estate out of its epic slump.
If you can raise capital, high quality Real Estate now is both cheap and plentiful. I know its easier said then done…but if you can acquire Commercial Real Assets at the current depressed prices…you will be rewarded.
Enjoy Your Day!