Thursday, February 14, 2013

Commercial real estate recovery is very impressive

The recovery in commercial real estate is now almost four years old. As the top chart shows, commercial property prices are up decisively in recent years. As reported by CoStar, its Value Weighted Index was the first to turn up due to strength in the high-end sector of property market. But now the equal weighted index is starting to catch up, a sign that the recovery is broadening.

The second chart shows the price action for Vanguard's REIT fund, whose price has risen 215% from its March '09 low. On a total return basis, this fund has trounced the S&P 500, gaining 287% vs. 142% since the March '09 lows.

Thanks to panic-induced selling in late 2008 and early 2009, commercial real estate and related prices reached incredibly depressed lows. This represented one of the buying opportunities of a lifetime. If the economy merely avoids another recession, commercial real estate is likely to continue to deliver attractive returns relative to the almost-zero yield on cash.

Full disclosure: I am long VNQ at the time of this writing.


theyenguy said...

Scott, thanks for this article and all of the articles; they are stimulating to read and insightful to read.

I also enjoyed the article The US goes global, where you related that The U.S. economy is finally becoming globalized, like most of the world's other major economies. The growth of international trade is an unqualified good thing, for us and for the rest of the world. It makes economies more efficient and boosts standards of living everywhere.

I comment on both articles that Keynesian and Monetarist stimulus, specifically the US Fed’s ZIRP, and Quantitative Easing, the ECB’s LTROs and OMT, the BoJ’s Unlimited Easing and PBOC monetary injections have stimulated global growth and trade, as well as have developed corporate profitability and rewarded investors who went long when QE 1 commenced, or who hung in with their investments as they recovered.

Sovereignty begets seigniorage, that is moneyness. Where seigniorage exists, that is where moneyness manifests, there exists a sovereign producing it.

Sovereign nation states, and their central banks, such as the US Fed, the ECB, the BoJ, and the PBOC, are the sovereigns that have produced the seigniorage that stimulating Nation Investment, EFA, Small Country Nation Investment, IFSM, Emerging Market Investment, EEM, Global Production, FXR, Dividend Investment in REITS, VNQ, as well as risk investment in Leveraged Buyouts, PSP, Junk Bonds, JNK, Senior Bank Loans, BKLN, Emerging Market Bonds, EMB, Spin Offs, CSD, and IPOs, FPX as is seen in the ongoing two year combined chart of EFA, FXR, VNQ and PSP. The Global Producers, FXR, have provided the best capital return, and the REITS, VNQ, the second best.

The Sovereignty of Liberalism is at its zenith. And the US is Liberalism’s Premier Sovereign. The US, the second of two iron legs of global hegemonic power since the late 1700s, is as President Obama just finished speaking in the State of the Union Address, manifesting Peak Hegemony.

The adoption of the Milton Friedman Free To Choose Floating Currency Regime, produced Liberalism’s Peak Currencies, Peak Nation Investment, Peak Global Production, Peak Wealth, Peak Sovereignty, Peak Central Bank Wealth, and Peak US Hegemony.

Dollar Hegemony is at its peak, as Allan Sloan communicates in Fortune Magazine article The Fed’s Big Dollar Gamble. Ben Bernanke's low interest rate policy has driven down the dollar; the Fed’s keeping-lowering-rates program doesn’t have an an indefinite shelf life. The bottom line is that pharmaceutical stimulus is forever; but Fed stimulus isn’t. It’s as Ron Paul, in Lew Rockwell, writes we are seeing The End Of Dollar Hegemony.

New sovereignty, new sovereigns, and new sovereign wealth is coming, The unwinding of the Euro Yen Currency Carry Trade, that is the EUR/JPY, together with competitive currency devaluation, will be the two active agents destroying fiat wealth as well as the global hegemonic power of the US.

Inflationism is turning to Destructionism. Stocks are turning lower on the exhaustion of the world central banks’ monetary authority and resulting inability to stimulate global growth and corporate profitability, as well as on the dynamic that the monetary policies of the US Fed, the ECB, the BoJ, and the PBOC, have crossed the rubicon of sound monetary policy, and have turned “money good” investments, bad.

Gold, GLD, is both a currency and a commodity; and it has now likely been fully debased by the rise of the World’s Major Currencies, DBV, and Emerging Market Currencies, CEW; and soon will be trading higher as fiat wealth of World Stocks, VT, VSS, Base Metals, DBB, Major World Currencies, DBV, and Emerging Market Currencies, CEW, and Bonds, BND, fall into the Pit of Financial Abandon.

Charles Lee said...

Yes. We have seen a pipeline increase 10x in the last 12 months. Hope it keep going.

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Imam said...
This comment has been removed by the author.
Anna Schafer said...

But now the equal weighted index is starting to catch up, a sign that the recovery is broadening.home insurance

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When looking for real estate make sure you don't forget to think about your possessions too. Move My Stuff is a great place to start with this :)
Great post, thanks for sharing.

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