Commercial Investment Real Estate

JAN-FEB 2015

Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.

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31 January | February | 2015 CCIM.com Table 1. RERC Historical Value vs. Price Ratings Figure 6. Commercial Real Estate Value (Gross) Outlook Figure 5. Spreads Between RERC Pre-Tax Yield Rates and Going-In Cap Rates and 10-Year Treasurys erties seem to be moving further out from core urban areas for example, Long Island, N.Y., versus Manhattan. Value Expectations for 2015 Commercial real estate is a favored investment alternative compared to stocks, bonds, and cash, especially in these uncertain times. Not only does commercial real estate generate high risk-adjusted returns compared to other investments, property is tangible, transpar- ent, a hedge against inf ation, and of ers reason- able return performance on capital and income. (Income is currently approximately 60 percent of returns.) Commercial real estate has more than recov- ered the value it lost in the Great Recession, as shown in Figure 6, and with respect to return performance, broad market prices and values have room to grow for approximately 12 to 18 months. T is does not mean that commercial real estate prices and values are sustainable, but for many investors, there are no other good alternatives, and as a result, many investors will continue to pay nearly any price for the value commercial real estate of ers. enneth P. Riggs Jr., CCIM, CRE, MAI, FRICS, is president and CEO of Real Estate Research Corp. (www.rerc.com), a Situs company, and publisher of the RERC Real Estate Report. For more information, or for a special CCIM member discount to the report, please contact RERC at publications@rerc.com. according to RCA, while the price per unit increased to $154,798. RERC's required cap and discount rates for this sector decreased more than for any other property type on a YOY basis in 3Q14, as RERC's required pre-tax yield rate and required going-in cap rate declined by 80 bps to 9.2 percent and 7.2 percent, respectively. PKF predicts that hotel sector occupancy will reach 65 percent in 2015, which would be the highest occupancy achieved since the recording of this rate started. Investment trends for hotel prop- Source: RERC, 3Q 2014 Ratings are based on a scale of 1 to 10, with 10 being high. Source: RERC, NCREIF, 3Q 2014 Shaded area refl ects RERC's outlook scenarios from 4Q 2014 to 2Q 2017. Source: RERC Institutional Investment Survey, Federal Reserve, 3Q 2014 Basis points Basis points

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