Tuesday, May 5, 2009

The Debts of the Spenders: Commercial Real Estate Bargains?

Only if you are a deep pocketed investor. The contrarian play may become more compelling w/the possible addition of CRE (commercial real estate) to TALF funding.

“We’re seeing an upswing in interest for new property funds looking to take advantage of opportunities arising from distressed developers forced to dispose of property portfolios quickly at deep discounts to current valuations,” reports James Sullivan, managing director with PILinvests, which helps to set up funds. “Specialist property managers are positioning themselves to make the kill. These bulk discounts are likely to exceed any further price corrections and are resulting in high initial rental yields and good income for investors.”

A report out this month from Standard & Poor’s reveals that property stocks around the globe slid 19.8 per cent in the first quarter, dashing hopes that the market is nearing its bottom. In the UK, conditions have been so poor that a number of property companies have been forced to raise equity through rights issues and forced sales to cover banking agreements.

The picture may worsen further if property prices and occupancy rates fall and rents soften even more. However, the case for investment is growing more compelling as the gap between the cost of financing and property yields widens. For example, swap rates are now around 2.92 per cent and average property yields are 7.5 per cent.



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