Nervousness about Stock Market Could Help Commercial Real Estate

Sept. 6, 2011 - PRLog -- Continued skittishness about the stock market may drive investors to commercial real estate and privately held REITs.  

That’s the view of guests of this week’s “Commercial Real Estate Show,” hosted by Bull Realty founder Michael Bull. The highlight of this week’s show was a discussion Michael led about the potential effects of Standard and Poor’s downgrade of the U.S. debt rating, federal spending reductions and recent stock market volatility on commercial real estate.

The current economic climate is fueling consumer and investor uncertainty, observed Chris Macke, a principal of General Equity Real Estate. “In these situations, you can get what is called a ‘flight to safety,’ and commercial real estate is traditionally considered a safe-haven asset,” Macke said. “This could happen through direct purchases as well as investment in private REITs.”

The economic atmosphere could “drive capital into a certain part of the commercial real estate space,” added Dan Fasulo, managing director of Real Capital Analytics. “It’s almost like gold: when everyone is uncertain about the environment, capital rushes into gold. Core, trophy real estate has some of those characteristics.”

However, a sharp drop in consumer confidence would spell trouble for the sector, said Ryan Severino, a senior economist with REIS. “If we continue to see stock prices decline and we see the consumers mood sour even further, we run the risk of companies beginning to reevaluate their businesses and their hiring plans …,” he said. “That would not bode well for commercial real estate at all.”

Sean Pattap, a senior director with Fitch Ratings’ REIT Group, explained why Fitch maintained its AAA debt rating for the United States, noting that the country can sustain more debt than other countries with the same rating. However, the United States “must develop a more credible debt reduction plan,” he said. “[Otherwise], that could test the boundaries of the AAA rating.”

The guests also noted that the sector stands to benefit from the continued low cost of capital.

The show is available for download here or online any time. The show airs Saturday in Atlanta on Biz 1190 at 10am ET and on Talk 920 Sunday at 9am ET.

The next “Commercial Real Estate Show” airs September 10 and will provide the inside scoop on auctions for brokers, sellers and buyers, as well as detail auction best practices.