CRE Investment: It’s a “Good Time to Deploy Capital Today”

Some economic indicators haven't been very encouraging of late, but a few reports see the capital available to U.S. companies as ripe for investment opportunities.

The Capital Markets newsletter of Commercial Property Executive has reported on the cyclic nature of the 2011 economic trajectory – including both European debt concerns and some positive news from international markets – but the aftermath of some of this year’s setbacks have brought new concerns to light. A report earlier this week pegged the possibility of a double-dip recession at better than even money, and a report by the Conference Board has predicted that the next decade won’t be all that kind to the world economy.

But commercial real estate, by virtue of lagging these major indicators by up to three quarters, may not have the same challenges ahead. A recent report by CBRE Group Inc. sees modest growth for U.S. CRE markets, especially on the investor side. Reaching a similar conclusion as the Conference Board, CBRE sees the next few years to be a slow, but hopefully steady, increase in economic activity.

One positive factor, according to Asieh Mansour, head of research in the Americas for CBRE, is that there is still strong corporate profitability. “U.S corporations have pristine balance sheets,” she wrote in the report, “with an estimated $2 trillion in cash.” So there appears to be money just waiting around for investment purposes.

Others in the industry feel the same way.

“This is not a normal recession,” Rakesh Kishan, president of real estate consultancy firm UMS Advisory, told Commercial Property Executive. “There’s high unemployment, but record corporate profits. Austerity measures are in place, and many firms are uncertain about the future.”

So why are we in such a predicament? If firms have ready cash, why are they not using them for investment purposes?

According to a Ernst & Young report released in October 2011, sellers are reluctant to move into what they perceive to be a weak transaction market. “Investors are demanding more transparency,” the report noted. “There are a number of players sitting on the sidelines, particularly sellers, and the most activity there has been from sellers is for the higher quality, premier class A properties in major city centers because of attractive pricing.”

A report from CRE investment firm Savills L.L.C. confirms that outlook, noting that that New York City has recaptured the top spot as the market attracting the most investment worldwide, with $39.8 billion in real estate transactions hitting the books in the last 12 months. So it’s all about putting the puzzle pieces together.

The Ernst & Young report summarizes the scenario succinctly: “For 2012, we’ll be able to reflect back on this period as a floor … making this a good time to deploy capital today.”