Wanted to share two recent reports highlight the strength of the commercial market.
Morningstar reports that commercial real estate is much stronger than housing as evidenced by real estate funds, which have recorded an average annualized return of 33 percent over the past three years. Through June, real estate funds have attracted $2.9 billion in new cash while investors have pulled out of nearly every other stock fund group. The decline in commercial real estate was not nearly as severe as the residential market crash due to the fact that office buildings, industrial facilities, hotels, and apartments were not overbuilt to the same extent as homes.
Meanwhile, Fitch Ratings reports that delinquencies on commercial real estate collateralized debt obligations (CDO) declined in June for the second month in a row. The rate fell to 12.3 percent last month from 13 percent in May. Just five new delinquencies were added to the Fitch index in June, while 15 assets were removed. Eight of those 15 interests were disposed of at full to partial losses, which contributed to the $115 million in realized losses reported by asset managers in June—the highest monthly total so far in 2012.
Sources: “Real Estate Funds Lead the Pack, Can It Last?” USA Today (June 21 2012) and “Fitch: Commercial Real Estate CDO Delinquencies Fall for Second Month in a Row,”” Wall Street Journal (June 20 2012)