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Insights

September 19, 2019

The U.S. Commercial Real Estate Market Remains Strong Despite Global Economic Concerns

By Roman Petra

National Real Estate Investor

Reprinted with permission from the National Real Estate Investor

Many savvy investors thought the markets reached its cycle peak a few years ago. That turned out not to be the case.

Ten years since the economic expansion started after the Great Recession, commercial real estate remains strong. Many real estate professionals and investors expected markets, including real estate, to contract sooner, entering hyper-supply.

At the 2015 CCIM Institute’s annual conference Sam Zell, the founder and chairman of Equity International, discussed the sale of his multifamily portfolio with more than 23,000 apartments to Starwood Capital Group for $5.4 billion. He believed that it was an opportune time to sell his portfolio; and, many real estate professionals believed that he had sold at the top of the market, based strongly on his foresight in 2007 to sell his office portfolio before the market crashed. Obviously, taking profits off the table is a win, but were there more profits to realize? Since then, multifamily properties have continued their run, driving prices even higher and squeezing cap rates even more.

Multifamily, retail and office remain of interest to investors

Today, investors continue to be interested in multifamily properties as a stable investment, earning some yield on their capital; albeit, for operating real estate—a modest yield. One surprise in the multifamily housing space is the demand for performing affordable housing product. Investors who have traditionally capitalized on market rate product have gravitated toward affordable housing. Many acquired affordable housing properties are subject to income and rent restrictions, which will remain in place for some time. The question that begs to be answered is, why investors who traditionally invest in market rate product would move into a space that is heavily regulated and scrutinized, and restricts rent increases?