{"id":409412,"date":"2010-03-09T17:55:00","date_gmt":"2010-03-09T22:55:00","guid":{"rendered":"http:\/\/www.businessinsider.com\/heres-why-commercial-real-estate-isnt-going-to-destroy-the-economy-2010-3"},"modified":"2010-03-09T17:55:00","modified_gmt":"2010-03-09T22:55:00","slug":"heres-why-commercial-real-estate-isnt-going-to-destroy-the-economy-and-why-you-should-actually-be-bullish","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/409412","title":{"rendered":"Here’s Why Commercial Real Estate ISN’T Going To Destroy The Economy, And Why You Should Actually Be Bullish"},"content":{"rendered":"
(This post appeared at Infectious Greed<\/a>.)
<\/address>\n

From Michael Cembalest at JPMorgan, the case for commercial real estate: <\/strong><\/p>\n

THE STOCK ARGUMENT FOR COMMERCIAL REAL ESTATE<\/strong><\/p>\n

One CEO panelist whose company runs 20 mm sq ft of retail also owns 30 mm sq ft of office space.  He’s optimistic: he notes the smaller oversupply problem compared to prior recessions, and faster speed of price adjustments.  For the most part, I agree.  The first two charts below show that compared to two prior cycles, less commercial property was added, and that the pipeline as a % of the existing stock is low (exception: Madrid)<\/strong>.  The third chart shows the rapid speed of price declines this time around, compared to the 1991 real estate recession.  So both arguments are supported empirically. <\/strong><\/p>\n

Some context, however: in the U.S., over-supply conditions of the early 1990s were a by-product of changing tax rules<\/strong>.  The 1981 Economic and Tax Recovery Act allowed the use of accelerated depreciation on commercial property, and the offset of active income with passive losses.  This created a building glut, then rendered useless when the 1986 Tax Reform Act scaled back these tax advantages.  As a result, we wouldn’t expect the same degree of over-supply today<\/strong>.  But still, the combination of price declines already in place, a slow but gradual economic recovery and a smaller supply overhang argue for some property exposure in portfolios.  Another positive: for better or worse, the vast majority of maturing commercial real estate loans were rolled in 2009<\/strong>, whether owed to banks, insurance companies, or CMBS trusts, and often without new equity contributed.<\/p>\n

\"chart\"<\/p>\n

 <\/p>\n

Read more economic commentary at Infectious Greed ><\/strong><\/a><\/h2>\n

Join the conversation about this story »<\/a><\/p>\n

See Also:<\/b><\/p>\n