The Benefits of Investing in Commercial Real Estate
Last year may have ended with a whimper… But not for commercial real estate…
In the first half of 2015, volume in U.S. commercial real estate grew 36% year over year to $255.1 billion – a pace well above 2006. Despite an interest rate hike from the Federal Reserve, fears of global recession, and oil at historic lows, buyers showed little concern, pushing deals through at record pace.
By the end of 2015, sales ran to $504 billion – the highest one-year total we’ve seen since the financial crisis of 2009. And there’s very little reason for concern that 2016 won’t be as impressive, despite concerns for flat growth from Morgan Stanley.
While I don’t subscribe to fears of flat growth, I can tell you with certainty that commercial real estate rewards will continue to outweigh risks over the long-term… and should be an essential core of your portfolio, given the sustainable cash flow, tax benefits, and security offered through such investments.
Given the growth prospects for commercial real estate, should investors invest their capital in the publicly traded real estate investment trusts (REITs)?
“There’s always opportunity when you invest in REITs,” I just explained to Chuck Jaffe’s Money Life audience last week. “For me, though, I find better opportunity with private limited partnerships, such as my Talia Jevan Realty Fund that’s retuned 33% over the last 10 years, as compared to 9.5% growth in REITs.”
In fact, if we examine the FTSE/NAREIT All REIT Index for 2016, we can see it fell 3.5% in January so far on the heels of the pullbacks in the overall market…
Over the last 10 years, we’ve see 6.4% growth on the S&P 500 and 9.5% growth in the average REITs… While that’s not a terrible return, my Fund has returned as much as 33% over the last decade, highlighting the unique opportunity that private limited partnerships offer, including less volatility and higher yield.
As I note in my book – Winning with Commercial Real Estate -- REITs are 20 to 40% less risky than investing in the S&P 500. But private limited partnerships have even lower risk and don’t trade like a volatile stock.
One of your best bets in this volatile market is to shift funds directly into private limited partnerships that have access to high class, high-yielding commercial real estate, as I explained to Jaffe.