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CRE Investment Advantages

NEWS: CB Richard Ellis CRE Investment

CB Richard Ellis (CBRE) commercial investment firm has some things to say about how investors indulge in the current CRE soup. In a Special Report document published in April, 2009, entitled “Advantages of Investing in Commercial Real Estate,” CBRE addresses both CRE stock and invididual investment strategies and states,

A key difficulty in developing and implementing an exit strategy in the current CRE environment is the wide chasm between the bid-ask spread. A contributing factor to this is the relatively high appraisal values prevailing in the U.S., causing sellers to dig in their heels unless they are truly distressed. At the same time buyers are looking for bargain-basement opportunities. As a result, transaction volume has plummeted 74% in the U.S., according to Real Capital Analytics.

On main street America this analysis has real meaning as commercial property owners experience their own “bid-ask spread” in terms of lease and selling prices, i.e., what owners want and need measured against what tenants and buyers are willing to pay. The “bid-ask spread” truly impacts sellers with mortgages created in the 2005-2007 time period, especially if any cash-out factors came into play on these loans or, more significantly, if second position notes and deeds have been created.

The CBRE report is worth reading even by the most casual and low-keyed commercial investor because it helps bring clarity to the current market situation in which we all find ourselves.

Still, the CBRE document makes a good case for looking long term with respect to CRE investmets, whether securities or real property. CBRE’s “Special Report” is a must read document.

DOWNLOAD THE CBRE DOCUMENT: Advantages of Investing in Commercial Real Estate

When I am asked, “What do you think my commercial property is worth?” I cringe and feel less than completely at ease with the answers I know honesty demands.

It is not that I am reluctant to be completely transparent with a client. That is the easy part. The difficulty lies in communicating to commercial property investors that they may be facing a new commercial reality.

Our new commercial reality contains several characteristics that make buying and selling, leasing and landlording and other forms of investment more precarious than perhaps in times past.

Heads I Win Tails You Lose

Commercial real estate values are tipping and for some investors it doesn’t matter what side of the coin comes up.

In a majority of major commercial markets commercial property is softening and for those who purchased in 2005-2007, things may be less than stellar. This is also true of commercial real estate markets like Prescott, Arizona.

Owners who purchased in the 2005-07 framework invested at the top of the market…they bought high.
Continue reading “Facing a New Commercial Reality”