Real estate is best investment, say CCIM members

Real Estate Weekly,  June 11, 2008  

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Commercial real estate remained the most attractive investment vehicle in this era shaped by the subprime mortgage meltdown, slumping housing prices, soaring energy costs and a slowing national economy.

And, the apartment sector continued to lead other property types as the preferred option for investment dollars. Those were key findings of the Second Quarter 2008 RERC/CCIM Investment Trends Quarterly, a national analysis of commercial real estate. The report is produced by Real Estate Research Corporation (RERC), a national research and consulting firm, and CCIM Institute, the governing body of the worlds' largest commercial real estate brokerage network.

CCIM members gave commercial real estate a 6.7 rating as an investment type, ahead of stocks (4.3), bonds (4.5) and cash (5.7). The rating (based on a scale of 1 to 10, with 10 being the highest) exceeded the previous quarter's rating of 6.0 for commercial properties. The Second Quarter report covers the three-month period ending March 31. "The message the market is sending is that commercial real estate is a good investment and the pricing is not viewed as being too far ahead of the fundamentals, especially from a risk perspective and compared to alternative investments," the report stated. In 2007, the report noted, commercial real estate was in a "re-pricing phase," and the bid/ask spread widened because sellers were unwilling to lower asking prices, while buyers were unwilling to pay the asking price given the unstable economy and financial markets. An index chronicling buy/sell/hold recommendations from early 2003 through First Quarter 2007 stood at 8.0 to sell; by the end of the year, it was at half that level. "Given the big picture, commercial real estate is reacting appropriately to the alarm," the report continued. "If it had continued with the levels of the First Quarter 2007 CMBS underwriting that possessed aggressive pricing of high loan-to-value ratios and high valuations, commercial real estate would have undergone a fate similar to the subprime market."

(Ratings from the report--a scale of 1 to 10, with 10 being the highest--reflect CCIM Institute members and other expert views of the overall commercial real estate market, specific property types and geographic regions, and take into account supply and demand, economic conditions, pricing, rental rates and other factors.)

A poll on investment conditions by property type--a perspective on the investment environment that includes supply and demand, economic conditions, pricing and other factors--revealed that apartments remained at the forefront. Apartments garnered a 7.0 rating, a slight dip from the 7.1 rating the previous quarter, but still the highest rating for five consecutive quarters.

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