Optimism runs high for further commercial real estate growth

Optimism has returned to pre-recession highs among many real estate investors, according to some observers. While those burned by the last market meltdown require more than optimism to place their money in commercial real estate, there are a number of benchmarks that point to current growth in the market and support future gains.

For the present, indicators look positive with the centerpiece being data from the National Association of Realtors showing commercial real estate prices reaching beyond levels seen in 2008. Further returns are far outpacing the margins seen in 2007. Investors who turned to U.S. Treasury bonds for wealth protection in 2007 would have been poorly served by moving funds into commercial real estate. The spread between earnings in 2016 is many times that seen in 2007, which provides investors the impetus to buy into the real estate market.

Broad markers, such as a rising GDP, employment rate and declining vacancy rates for office space, are supporting the price increases and pointed to as indicators of future growth in both commercial and residential property. The Urban Land Institute states that the real estate transaction volume is increasing, yet development continues to lag.

Cycles are an inevitable part of any market, but the legal pitfalls and risks are unique in real estate investing. Beyond assessing the market and particular investments for profit potential, anyone interested in supplying venture capital for developments, buying into REITs or forming partnerships must also meet the problems of contract negotiation, research property management companies, deal with zoning laws and face a number of other legal issues. Experienced legal counsel can often be capable of spotting these problems in advance and in helping clients avoid the many challenges common to real estate transactions.

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