RT Journal Article
SR Electronic
T1 Commercial Real Estate
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 27
OP 36
DO 10.3905/jpm.2007.698903
VO 33
IS 5
A1 Jon Ruff
YR 2007
UL https://pm-research.com/content/33/5/27.abstract
AB The spread of mortgage securitization and a decline in business-cycle volatility have reduced the traditional risks of holding commercial real estate. These secular factors, in turn, have contributed to record property valuations. Investors seem willing to pay higher prices for the same cash flows because they believe they can borrow at lower rates and count on stable cash flow from commercial rentals in a climate of comparative certainty. The result has been a sharp compression of the risk premium on commercial real estate. No doubt, this phenomenon will in part prove to be cyclical. However, the evidence suggests that, long term, the commercial real estate risk premium will remain below its historical average.TOPICS: Risk management, real estate, portfolio management/multi-asset allocation