Where is Commercial Real Estate Today?
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A very good question that, for the last few years, has been asked and answered in varying terms and from “knowledgeable” sources, most of which are deemed “reliable.”
“After the European debt crisis and US government bonds gave us a rocky ride in 2011, commercial real estate is back in the saddle for 2012” (John Levy, founder of John B. Levy and Company, Inc., a real estate investment-banking firm headquartered in Richmond, Virginia). “Multifamily has been the darling performer of commercial real estate, and it owes a huge debt of gratitude to the single family market being in the tank for years. But what has really driven the multifamily is cheap money from the Feds. It’s puzzling as to why the government provides mortgages for less than what the private market charges.”
In fact, there are many other predictions that show further concerns/cautions. According to the Real Estate Roundtable’s Q-1 2012 Economic Sentiment Survey, “expectations for growth this year are improved, but hindered by concerns about underlying macroeconomic and political risks. With weak job creation, erosion of equity throughout the country, and a massive number of loans coming due, questions appear more than answers at this time.” Another report indicates that approximately $362 billion in CRE mortgages will mature this year, yet the commercial mortgage-backed securities (CMBS) market—still a shadow of its former self—is only projected to issue some $30-55 billion in CRE loans. This theory is backed by multiple sources. Even though capital markets are improving somewhat, sustaining that is questioned.
If we want to add to this dilemma, we only have to look at the fact 2012 is election year. After months of heavy debate during the primary season between multiple “new” parties and within the Republican Party, there is finally a representative to challenge the existing Democratic stronghold. We don’t yet know what that will mean to the marketplace. It would appear that this is a very difficult time to acquire investment real estate and expect it to increase in value until we get some clue of what to expect from the top.
WHERE DOES THE BUYER/PRACTIONER/BROKER FIT TODAY?
Whether you are the principal or partner in an ownership position, or a broker or legal representative in a transaction, you must understand and be aware of the many intricate parts to a potential transaction before making a final decision or recommendation to acquire or dispose of an asset. Part of this process is simply to identify whether the investment does have the potential to satisfy your purpose(s) for making the investment in the first place. This takes extensive knowledge of the market as partially defined above or access to qualified individuals who can provide such information so that you can make an appropriate decision.
It can be even more complicated to divest yourself of current real estate holdings without suffering some significant losses (depending on your situation) or tax consequences if you have held those for a period of time. Professional guidance and assistance in these areas are at premium demand now, as much as any time in history. However, with the right direction and expert guidance/counseling, this could be a very good time to consider investing in commercial real estate, if done correctly.
The Society of Exchange Counselors was formed in 1961 by Richard Reno and 18 other Realtors with a common goal of forming a national organization whose individual members were committed to practicing creative real estate and counseling. The S.E.C. membership is nationwide, but still selects membership through invitation only and from people focused on counseling, exchanging, and creative real estate.
Today, more than any other time, investors need expert counseling for the purpose of working through problem situations and taking advantage of today’s market opportunities. In addition, expanding the flexibility of their investment portfolio in an appropriately structured manner can bring the best possible hedge for future economic cycles.
Best Regards,
Leo A. Goseland, S.E.C.
