Nerves of Steel via Commercial Property Executive

Uncertainty continues to dominate the investment environment—uncertainty about the outcome of the November elections and the “fiscal cliff” facing our nation at the end of the year, uncertainty over whether the Federal Reserve will throw another round of quantitative easing into the economic mix, uncertainty about which European country will need a bailout next or whether the euro will survive, to name a few—it is going to be hard to balance the return investors require and the risk that is getting harder and harder to stomach.

Even prime commercial real estate, which as an asset class on an institutional basis is considered a relatively “safe” investment and has been clearly holding its own during the ups and downs of the recession and recovery, is becoming more risky as prices have been bid up in the major markets. In fact, Real Estate Research Corporation’s (RERC’s) return versus risk ratings, as reported in the recent issue of the RERC Real Estate Report, declined for commercial real estate as an asset class and for each of the individual property sectors during second quarter 2012. This reflects the recent run-up of prices for core properties and the major markets and the lack of rebound for properties located in the secondary investment markets.

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