Portfolio Mgt: Commercial Real Estate

Investments in CRE  are Affected by Two Factors

One.  Equity.  As equity allocations [for investment] compete with commercial real estate, stock and bond markets, investors are evaluating the returns they could obtain from investing equity into opportunities of interest that receive a larger net amount in the future (a/k/a investment returns).  Investors will compare the returns they could receive from investing in real estate vs. stocks or bonds, and the tradeoffs made to invest in illiquid real estate vs. more liquid stock ownership.   Liquidity enables the investor to end the holding period of an investment to reallocate the principal plus capital appreciation into a more lucrative investment opportunity.

Two.  Basket of Leases.  A large percentage of property value is derived from the discounted value of the lease-up.  Investing in new development could be a 3-7yr hold pending the value of the lease-up or could be likened to a bond by investing in a long-term lease.  Leases within the commercial building are likened to individual investments within a portfolio (the building).  As leases expire, the space may re-let at a higher rental rate, or a lease renewal is made to maintain the stream of cash flows.  Renewals are often made at discount to market value to attract the tenant to remain operating from the building.

Larger cap investors tend to match investment opportunities with the returns they set for equity or equity funds.  Portfolio returns are the result of how equity is placed into the project in relation to NOI derived from dynamics of the basket of leases.  Thanks for reading; please comment or write “Portfolio Management” into the “Request a Consultation” form at the base of “About Us” page.  I will reply to your inquiry within 24 hours. ###

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