The financial crisis of 2007-2008 deterred many investors from entering into the volatile and fledgling economy. As a result, investment firms around the country began to explore options outside of the stocks and bonds market. One of those alternatives, commercial real estate, has proven to be more than satisfying.
The Wall Street Journal reports that investments in commercial real estate have increased since the financial downturn. One financial firm, BigSur Wealth Management in Miami, Florida, found that their clients took greater interest in office and apartment buildings; these investments can produce steady income without many of the risks associated with traditional stocks and bonds.
Risk assessments aside, investors found commercial real estate appealing because unlike stocks and bonds, real estate is a physical thing.
“Clients wanted to touch and feel the asset, they wanted direct exposure,” said Rafael Iribarren, a managing partner at BigSur.
Approximately 10% of BigSur’s client investments are in commercial real estate, and the firm hopes to increase that share to 14% or 15% within the next two years.
“Our clients have been happy with our direct investments in core commercial real estate,” Iribarren said. He also pointed out that certain real estate can yield returns in the high single digits and even the lower double digits.
Investors and financial firms across the country are also taking advantage of commercial real estate investment. The investments often come with low interest rates and high returns. They can also diversify a client’s portfolio.
“After the global recession of 2009, many individual and institutional investors sought greater exposure to commercial real estate. In doing so, they added an asset class that has the potential for high income, stable total returns, and added diversification to investment portfolios in volatile markets,” said Taylor W. Grace, managing partner at Midwest Capital Funding.
Indeed, investment management company BlackRock Inc. recently released a survey which stated that large financial institutions are likely to make significant changes in allotting their assets this year, including shifting their attention to physical assets like commercial real estate.
“We’re in a low rate environment, so in this quest for yield, commercial real estate has hit a lot of radar screens as people are looking to enhance their income,” said Cliff Caplan, president of Neponset Valley Financial Partners in Norwood, Massachusetts.
In particular, a real-estate investment trust (REIT) is a popular method of investment. REITs can be publicly traded and are generally easier to handle than traditional stocks and bonds. That’s not to mention the fact that they tend to produce greater dividends. Even non-traded REITs are advantageous to investors.
Regardless of the kind of investment put in place, financial advisers still remain cautious with an overzealous investment clientele. They advise against, for example, solely investing in the client’s hometown, as that could inundate the market and drive down returns. They also tell their clients that despite the potential lucrativeness and relative security of real estate investments, these investments are just that — investments — and as such there will always be risks involved.
“In 2009 and 2010, they were much more cautious but now they are requesting that we do even more transactions,” Iribarren said. “We have to say, hey guys, there are some risks.”