Transcripts

Getting Real About Commercial Real Estate As An Investment Option

Rising mortgage rates and talk of a housing bubble have scared away many people from considering real estate as an investment. Many strategists say that`s a mistake and that property should be a part of any well diversified investor`s portfolio. Scott Gurvey reports.

SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: While the torrid pace of price appreciation in the market for homes is expected to slow this year, the commercial real estate market is in turnaround mode.

DENNIS YESKEY, DIRECTOR, REAL ESTATE CAPITAL MARKETS, DELOITTE CONSULTING: The most interesting thing is our fundamentals for the last four years have been declining. Vacancies have been going up, rents have been going down. The end of last year beginning of this, it`s turned around. The fundamentals are getting better. So if the economy keeps coming along in most categories, it looks like that would do very well for commercial real estate. The rents will go up, slowly and vacancies will decrease.

GURVEY: Many financial planners now recommend commercial real estate as a separate investment category like stocks, bonds or commodities. The problem, of course, for individual investors is that few have the means to buy a well- diversified portfolio of buildings. Real estate investment trusts were created nearly 50 years ago to let small investors take part in large-scale real estate portfolios. REITs usually trade like stocks. Some package apartment buildings, some shopping malls, but most own office buildings, sometimes in a specific region, but often diversified geographically. REITs benefit from rental income and capital gains when the properties are sold. Most represent actively managed portfolios. The National Association of Real Estate Investment Trust`s index of publicly traded REITs gained 27 percent in the last year and averaged a 20 percent gain over the last five years.

STEPHEN SIEGEL, CHAIRMAN, GLOBAL BROKERAGE, CB RICHARD ELLIS: The vehicles for investment are actually much more available today than at any time, due to the expansion of the REIT market, the real estate investment trust, publicly traded companies on the stock exchange, and there are a number of different options in that arena. It`s an easy entry and it`s an easy exit for somebody, so it`s probably the most flexible vehicle for an investor who is not normally in the world of real estate.

GURVEY: Reits can also be packaged as mutual funds and in some cases specific groups of properties are packaged for private placement to qualified investors. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.