(Thanks for putting up with my Easter pun.) As a real estate investor, it’s time for a “feel good” reminder:
Commercial Real Estate (CRE) represents an attractive asset class.
Here are a few of the obvious reasons for some reinforcement:
– Inflation Protection (with contractual rent increases, CRE can offer the perfect inflationary hedge
– Long-Term Capital Appreciation (according to the National Council of Real Estate Investment Fiduciaries or NCREIF, CRE returns have outperformed the S&P 500 since the late 1970’s – ignoring the correction of property values in 2008-09)
– Low Return Volatility (CRE can lead to more predictable, recurring cash flows – especially well-located properties having a stable roll-over schedule of creditworthy tenants on longer-term leases)
– Diversification (CRE returns generally have a low correlation to stock and bond returns)
And for those of you who just can’t stay out of the stock market… Although 2013 was an exceptional year for the S&P 500 (32.7% return), equity REIT’s in 2014 are likely to outperform last year’s abysmal 2.7% return. The threat of interest rate increases weighed heavily on the REIT sector in 2013, but these returns should improve with the focus now leaning on company earnings – which should lead to additional demand for space in markets with limited supply.
I recently had the pleasure of appearing on a radio show entitled “The Art of Investing”, hosted by Art Espinoza. Having known Art for quite some time in the Vero Beach community along the Treasure Coast of Florida, he asked me to discuss what’s happening in the real estate market, who the primary borrowers of real estate capital are, where I see interest rates going, and a variety of other related topics.
Art has been a respected financial advisor and wealth manager for 28 years, and has offices in Vero Beach, Florida and Brookfield, Wisconsin. His show, “The Art of Investing”, is broadcast every Saturday morning at 9:30 am on WAXE 107.9FM and 1370AM, or on iHeart Radio: http://www.iheart.com/live/WAXE-1079-FM-1370-AM-4788/
Art kindly asked me to make regular appearances on his program, and I look forward to sharing real estate industry dialogue and exchanging topical ideas with listeners in the future.
It may not be an original question, but a relatively important one if you are deciding whether or not to lock the interest rate on your loan. Remember that long-term rates (more relevant to those focused on fixed rate financing) typically lag short-term rates (more relevant for floating/variable rate loans).
Rising Interest Rates are Mainly a Function of Three Things:
The recent good news on the unemployment rate (which could increase public demand for credit) was mainly due to the furloughed government employees returning to work. And, inflation is in check at 1%.
Here’s the Point: The amount of government debt has increased by over 150% in the past 10 years. Any material increase to interest rates would adversely affect the deficit, rendering even more budget problems for our current Administration.