For those investors among you looking at commercial real estate, you know that the picture isn’t pretty. Vacancy rates are at 20 year highs and loan delinquency rates have doubled to 7% in the past year. Tight credit markets make it nearly impossible for property owners to rollover short-term financing when it comes due ($400 billion this year and $1.8+ trillion by 2012).
So where to invest? Aside from opportunistically scooping up properties directly, we believe REITs are best positioned to ride out the storm. Many are positioning themselves to take advantage of this market with cash raised from secondary offerings; we may even see some IPOs hit the street in the near future. Private equity funds are not as fortunate; they face their own short-term debt obligations, while over-commitment of capital has left behind little in terms of reserves.