Investors have been shunning the commercial real estate sectors like the plague as desolate commercial buildings fail to attract tenants. Some believe, however, that the time is ripe for putting money back into the commercial real estate sector-related exchange traded funds (ETFs).
Commercial real estate is at its nadir, remarks David Fessler for Investment U, or equivalent to how low bank stocks were back in March. That’s why it may be a good time to start looking into this investment area, comments Fessler.
David Tepper, hedge fund manager of Appaloosa Management, was prescient enough to bet big in February and March, and he has gained a couple of billion for his troubles. Now, Tepper is purchasing commercial mortgage-backed securities, which also includes real-estate debt in the form of bonds.
On the other hand, critics believe the commercial properties market still has some struggles in store, and the associated debt refinancing problems in the sector will lead to nothing but further headaches down the road. [The future of commercial real estate ETFs.]
In the book This Time is Different: Eight Centuries of Financial Folly, Ken Rogoff describes a “Crisis Effect,” which shows that economic downturns are followed by an equities rebound first, then unemployment and lastly real estate. Rogoff also notes that real estate can fall 30% and take five to six years to return to pre-crisis levels. In other words, history could be repeating itself, Rogoff says.
So far, stocks have rebounded off what many believe were lows in March 2009, unemployment is rising again and the housing market collapse has gone on for about three years, which may make this a good time for a real estate turnaround, says Fessler.