Investing in real estate has generally been considered as a relatively safe and profitable venture. Over the past few years however, the housing market has proven it is not immune to volatile ups and downs nor it has been safe from speculators and scheming fraudsters. Fortunately, during the same time, commercial properties have largely escaped the chaos and ruin that the residential market has experienced. |
In fact, a recent study by Deloitte Consulting LLP, a subsidiary of the financial accounting firm Deloitte & Touche USA LLP, found many reasons to believe that commercial values are fairly consistent, making them a great real estate investment choice.
“In prior boom cycles, commercial real estate has responded by overbuilding. The industry has clearly learned its lesson because this time commercial real estate is enduring a credit crunch – not a crisis – partially because it resisted this urge. No doubt, the industry is in a strong position to withstand a recession, should one occur, and commercial real estate remains a viable investment option for those seeking to diversify and insulate their portfolios from market volatility,” said Dennis Yeskey of Deloitte’s real estate capital markets practice, as quoted in a press release on the company’s website. “Capital flow will return in 2008, with the exception of highly leveraged deals, and new opportunities are being sought in distressed debt funds, niche opportunities, and global markets.”
The “Real Estate Capital Markets Top Ten Issues – 2008” study found that although profits have been skimmed as the residential market has failed, commercial property investment values have held steady in many places, and have seen modest growth in others.
Plus, the surveys detailed, because of the shakeup in the housing market, mortgage underwriting rules that were also becoming too loose in the business world are now being examined and revised. The result is that investment loans will be safer, with less risk of fraud.
Another finding is that investment values have been strong in the office and industrial segment of this market, making them a much better investment at this time than retail properties or multi-family dwellings.
Additionally, funding for commercial property investment is much more readily available today than it is for residential real estate purchases. Of course, large down payments are still required as well as well-documented sources of income and assets, but the study found that lenders approve conservative commercial property investment loans quite often.
While some shifting of prices and expectations still need to take place, the study concluded that commercial market values have shown good stability and potential for pretty profits.
Going forward the study said, “Investors would do well to stop comparing CRE (commercial real estate) returns to the previous few years’ performance, and to take a closer look at how these returns fit into the bigger picture. Returns will probably be lower, but when compared to other investment categories (stocks, bonds, etc.), CRE remains an attractive investment vehicle due to its stability and opportunity for diversification.”
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