rising rental rates paint a bright picture for commercial investors. Here's why...
Cap Rates
"The ratio of the capitalization rate (the income produced by a property as a percentage of its value) versus the 10-year US Treasury yield (a proxy for borrowing costs) has been stable for four years at about 400 basis points, which is about 200 basis points above its typical trough. As cap rates have steadied, mortgage delinquency rates are down and quality is holding up." - Morgan Stanley
More Loans, More Business
The combination of the factors detailed above result in loan origination occurring at a much more rapid rate. More construction projects are being green-lighted and CRE development's outlook is looking brighter and brighter.
The Cyclical Sweet Spot
Commercial real estate fundamentals are entering the "cyclical sweet spot," as Morgan Stanley says. Investors looking for long-term cash flow-oriented investments with longer-term inflation protection properties should consider this asset class. They should also consider the addition of REITs focused on commercial properties.
Let our team be your partner in commercial real estate investing. Learn more about Block Funds.
Contributor:
Brian Beggs, CFA
Director of Acquisitions
Block Funds
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