Investors Shift Portfolios to Commercial Real Estate

Image Source: Edmonton Economic Development

Image Source: Edmonton Economic Development

The media has drawn significant attention to the multi-billion dollar portfolio restructuring of large REITs, trusts and private equity funds. What are the most sophisticated investors eliminating from their portfolios, and what are they investing in?

After picking the market dry and driving up residential prices in the U.S., global investors, as well as institutions, have refocused and are looking for more profitable investments. Even the largest investment firms have discovered the intense rehabilitation and property management single-family rentals require isn’t easy, which decreases their profitability. Some of these rental portfolios are being securitized and promoted to the secondary market. However, following Fannie Mae’s rolling out of new issues of inferior bonds at premium pricing, and the U.S. regulators declaring they have discovered “almost every” mortgage bond issue at the end of the last housing boom was flawed with improper actions, the argument for direct investment is stronger than ever.

The result is that both new and veteran real estate investors are looking to move up to the potentially enhanced returns of commercial real estate. Most are naturally gravitating to retail, and in particular are eyeing shopping plazas in stable cities.

Commercial real estate, and especially retail, offers many benefits to real estate investors. Some of these include cost per unit, ROI on value add improvements, and lower volatility.

The continued foray in to Alberta by global retailers like Marshalls suggests that retail merchants are still bullish on the province, which should result in increased consumer spending, as well as increased equity growth and cash flow for investors.

 
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