Variant Perceptions

Commercial Real Estate

Here is some recent information on commercial real estate transaction prices as background information to the Sam Zell interview,. The market is behaving much better than residential real estate and it looks like the next shoe will not drop. Housing remains a concern.

Sam Zell speaks

… and we ponder his thoughts on commercial real estate.

Sam Zell at the 2010 BMO’s Real Estate Market Conference

  • Investors waiting for waves of distressed real estate assets to hit the market may be waiting forever
  • Low interest rates encouragesĀ banks to hold onto assets since the cost to carry is very low
  • The incentive to foreclose has also been reduced for properties that still pay some interest
  • New construction is historically low and keeps supply in check
  • In Chicago for example, it would take $45 per square foot in rent to justify a new building, while most buildings are around $28 per square foot right now (replacement cost)
  • Large amount of capital is targeting a small amount of quality assets so as long as supply remains low high quality assets will continue upward
  • Investment in core CBD property in the US might be good investment for pension funds, but for many investors the returns will not be as good as they could be in other parts of the world
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