Commercial real estate performance generally lags economic growth by about four to six quarters. As our firm, ING Clarion Partners, suggested earlier this year, 2010 appears to be a transition year, moving from the steep downturn of 2009 toward a sustainable recovery in 2011.
Structural constraints on the delivery of new supply in a given market reduce an owner’s competition for tenants, which may lead to higher occupancy, higher rent levels, stronger rent growth and higher capital values over time.
The cap rate spread over the 10-year Treasury yield is normally positive, reflecting the additional risks inherent in real estate assets. The risk premium is generally considered necessary to compensate for liquidity, leasing and tenant credit risk.
“The Continued Risk of Troubled Assets”, the latest report from the Congressional Oversight Panel (COP), points out the ongoing risks that commercial and residential mortgage-backed securities (CMBS and RMBS, respectively), along with other illiquid troubled assets, pose for financial institutions and the financial system.