August 11th, 2011
This week’s OBP Perspective is provided by Jim O’Connell:
Will Stock Volatility Create Commercial RE Investment Demand?
Since our last newsletter we’ve seen more than a little bit of volatility in the capital markets. Down 500, then down another 630, then up 420, then down another 300. And that was all after our wise and insightful friends in the reliable ratings agencies decided that the US credit was now deserving of a downgrade. One headline on Wednesday read, ‘Market volatility here to stay’, and that was before they knew we were going to be down another 500 points that day.
This is not meant to be any sort of analysis of the stock market, but for me this latest activity generated numerous questions about how the stock market’s turmoil could affect the near-term and long-term commercial real estate market. Generally speaking, when the market drops like a rock in one day, nobody comes through your real estate portfolios and whacks your lease rates by 5%. Granted, there is an overall negative affect on the market and those rates if a day or week’s worth of activity turns into a long-term trend. But nobody loses those kinds of percentages on their lease revenues or property values with any sort of similar volatility.
So the question for me is, will more equity find its way into quality real estate investments?