Commercial Real Estate Rallies

Forgive me for being ever so slightly optimistic two days in a row, but we're getting some improving numbers on the commercial real estate market, and it's worth noting.

Yes, delinquencies in commercial mortgage backed securities are still rising and still a big headwind, and yes trophy properties in the big markets are faring far better than second and third tier markets.

I'm not saying it's on fire, but it's on the upswing.

Today I heard from two experts in the sector who seemed quite bullish. First, Sam Chandan of Real Capital Analytics. Next week he will put out a report saying that 2010 saw $115 billion in commercial real estate transaction volume, up from $54.6 billion in 2009 (up 111 percent!).

Chandan: "Commercial real estate investment momentum has been building through the year, culminating in December in the strongest monthly sales activity since 2007. Apart from firming pricing, investors have been supported in recent months by a sharp improvement in credit availability and indications of more stable property fundamentals. There are still real challenges ahead of us, such as the management of legacy distress and risks from rising interest rates, but the tailwinds are clearly pushing investment forward on the path to normalization."

Also today on CNBC's Street Signs, Erin Burnettinterviewed Quintin Primo, Chairman of Capri Capital, who says there is a great play in investing in distressed commercial real estate assets. He says returns should be 5-8 percent as long as you stay in the primary markets where "prices have firmed."

He is also quite bullish on the apartment sector, citing 3 million new renters since 2004 and growing. "The stigma about renting has changed dramatically in this country," Primo notes, adding that the home ownership rate has dropped from 69 percent to 67 percent. He thinks even with a housing recovery, which will be slow, the rental market will remain strong.

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