Three Long-Term Looks At Commercial Real Estate
There’s no doubt we see many signs of recovery in the national commercial real estate market. But as with any gigantic, inter-related collection of localities, sectors and instruments, it’s tough to know with any certainty what to expect long-term. As always, there’s plenty of room for disagreement about what lies beyond the horizon. Here are three conflicting looks at the CRE market long-term:
The Good: At this month’s NREI’s Strategic Real Estate Investment Conference in New York, panelist Arthur Mirante, principal and tri-state president of Avison Young painted a sunny picture of commercial investment, noting its steady attractiveness when compared to stocks. While he points out that knowing the market means mastering complexities, he believes that long-term, commercial real estate is the better value.
The Bad: When a big bank issues a new CMBS — that is to say, when a bank gets into the selling of the mortgage debt of commercial properties, the length of term of these bonds helps to tell us how much risk the bond issuer thinks is present with the underlying commercial mortgages. Shorter terms means a perception of higher risk. And JP Morgan Chase’s latest CMBS issue includes fewer 10-year notes and more 7-year notes, meaning they are “bowing to duration risk”, or, finding less happiness in the long-term CRE picture than you or I might.
The Not-So-Ugly: Then again, if giant banks were any good at evaluating mortgage risks, high or low, the country wouldn’t be in the hole economically now, would it? Moving along from our pinstriped friends to more, well, expert persons on the subject, we find an interesting long-term view from Jeffrey I. Friedman, CEO of Associated Estates, a multifamily REIT with much midwestern apartment property in its portfolio. Friedman’s long-term take “sees a lot of runway left” for apartments with a mixed forecast. Most interestingly, he thinks it’s a misconception to see job growth as the driver for apartment demand. Instead, he says, it’s family formation. Check out the whole interview with Friedman here.
What’s your long-term view on commercial property markets?
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