Quote:
Originally Posted by Robert.hampton
Sounds like your company is doing really awful business -- look at the report posted above: you should be getting close to 5% on the most lucrative and stable properties in Denver.
You can get fixed income in the 2% range -- why on earth you would take on all the risk and work of a real estate investment for such negligible return is quite befuddling, unless you are simply looking to extend your leverage without much for returns.
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There are lots of reasons to pursue a 2% return...like redevelopment potential, which a fixed income investment does not provide. Tax avoidance is a real motivation too - say you take $5mm in gain proceeds from the sale of a commercial bldg. Would you rather pay $1mm of that to the government, or reinvest it along with the other $4mm in a property that generates a 2% return? Most would rather roll it over (granted not at a 2% return) depending on the stage of life one's at, but if there is redevelopment potential, a 2% annual return could very well turn into a MUCH higher IRR over the course of the investment.
The point I'm trying to make is that there are LOTS of reasons that small properties trade sub 5, but real estate investors seeking a current return (the angle you seem to be looking at this from) do not generally pursue a sub 5 return (cap rate) and this includes pretty much all of the institutional world in Denver for large property transactions.