Despite return to peak prices, commercial property lures investors: VIDEO

July 27, 2012 04:00PM

The commercial property market remains strong as prices have largely recovered and investor interest remains acute, Hessam Nadji, managing director of research at Marcus & Millichap, said in an appearance on CNBC this week. Nadji said that the sector “defied the severity of the downturn” that plagued the housing market. Early on, he said, it was institutional investors seeking bargain prices driving demand, but as the recovery has taken hold private partnerships and international money have returned. Nadji said investor confidence in the sector was flat in the second quarter, offering further evidence that the market is stable (see video above).

But according to Alexander Goldfarb, the managing director of equity research at investment banking firm Sandler O’Neill, institutional investors continue to clamor for commercial property despite the rising prices of trophy properties because they “still have to solve for yield.” With the 10-year Treasury yield sinking below 1.5 percent, commercial investment is one of the fiew vehicles for high returns.

“Real estate in today’s envinroment, because there’s no new suppply, the durability of those cash flows, and the fact that you can get financing below acquiesion cost, is just making it a very lucrative investment,” he said.”That’s why you’re seeing capital pour into real estate even though values have recovered to the 06-07 peak, financing cost is a lot cheaper.”