The State of Commercial Real Estate

The commercial real estate industry is "in the intensive care unit," according to real estate mogul Richard LeFrak, president of The LeFrak Organization.

This video was brought to my attention by my associate, Harry Huffman. Harry runs his own blog - take a look here.

Great talk about the state of the American commercial real estate industry and the necessary changes that are coming in terms of the mindset of property owners, buyers and sellers. I'm not convinced however, that the same drastic changes will come to the Canadian market - other than perception in the minds of buyers. Granted, prices need to come down somewhat here, and it is definitely more difficult to finance deals today than it was 8 or 9 months ago, but the real problem is buyer perception. Interest rates have not increased that dramatically yet and the spreads are still healthy on a lot of investments here.

As I asked in an earlier post, did someone change investment fundamentals when I wasn't looking?

If I can still invest my money in a stable property with a stable tenant with a good covenant and achieve my hurdle rate, isn't it still prudent to make that investment? Do I really need to wait two years for everyone else to start buying again (increased competition) before I get back into the game? Shouldn't I be buying when everyone else is selling or worse yet, doing nothing? That's how Warren Buffet became so fabulously wealthy - by doing the opposite of what everyone else is doing. It's also how Donald Trump's empire grew - he looked for good deals regardless of what the market was doing. A good deal is a good deal no matter when you look at it. What is the opportunity cost of waiting for the 'right time'?

I don't have all of the answers. Do you?