Tag Archives: commercial real estate

Commercial Real Estate Market set to rebound.

Maybe I should have finished that Headline off with a question mark.  There is a great post from HousingWire reporting on the SF Fed’s report suggesting the Cap Rates are indicating a turn around in the commercial real estate market.   I agree the cap rates are the key factor on investing in commercial property, however I don’t believe the economy is sound enough yet.  In order to achieve these rates of returns you need tenants (businesses) to occupy the space and pay the rent.  You also need a stable tax environment where property taxes aren’t skyrocketing underneath you undermining your rate of return.

Investors are expecting a widespread rebound in U.S. commercial real estate markets, according to an analysis published Monday by the San Francisco Federal Reserve Bank.

With the two most widely followed measures of commercial real estate prices showing divergent trends since early 2010, economists at the San Francisco Fed turned to capitalization rates as an indicator of expected returns on commercial properties.

“Recent declines in these cap rates appear to be signaling a commercial real estate rebound, indicating improved investor expectations of price growth in the market,” said the San Francisco Fed’s economic letter.

…..Price appreciation in Kansas City, Minneapolis, Salt Lake City and Austin, Texas, is expected to be about 2% higher than national trends would indicate, said Hobijn and Krainer.

Read Full Article to get their Graphs and details of the report.


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Commercial real estate outlook turns grim

This is good update on the commercial real estate market on a national outlook.  It is funny that the Municipalities and State are looking to shift more property tax burden on the Commercial Real Estate that happens to be struggling worse than residential.  I don’t think that will help anyone out…

Just as the commercial real estate sector showed signs of recovery, analysts now forecast a renewed struggle as the economy slumps.

Financial advisory firm Deloitte said in a report Thursday modest GDP growth, still high unemployment and weakened housing demand delayed a full-fledged commercial real estate recovery. Nearly $1.7 trillion in CRE loans will come due between 2011 and 2015. According to Deloitte, 60% of these loans are underwater, making it difficult for tenants to refinance and extend their terms.

This strategy of “extend and pretend” may be waning as workouts faded in the first quarter of 2011 and new commercial REO showed an uptick (see chart below).



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Commercial Real Estate Market compared to Residential (case shiller)

This is a great visualization from calculatedrisk blog.  The commercial real estate market is tracking about 18 months behind residential.  Commercial Property Price Index vs. Case Shiller.  So what my question is:  In order for the Residential Market to recover, we need jobs. The primary purpose of Commercial property is commerce aka Jobs.    So which market will recover first?  Residential or Commercial??   Thoughts?

Also another question comes to mind – had we not interfered with the residential market (government intervention) would the Case Shiller index bottomed out like the CPPI?  Was it really worth it?

CPPI vs. Case Shiller (calculatedrisk blog)


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