Investing in Real Estate – is it Time Yet?

As per usual, the best one can say about the "news" as to whether now is a good time to invest in real estate is at best confusing, at worst deliberately so. But there are some indicators giving an idea as to when and at what price is a good time to consider re-investing in property. Ignoring the obviously "spun" headlines from the government press release farms such as The Times, these are a few recent, factual articles that might be of interest as it would appear that the commercial real estate bubble is now starting to burst - and as predicted will have an impact on the credit availability in the residential sector.

Morgan Stanley has started writing down more of their commercial property funds - 80% of the properties in Fund V U.S. and 60% in Fund VI International. “Virtually any fund holding highly leveraged real estate assets and loans that were purchased during the last three years is in a very precarious position, given the steep decline in property valuations,” said Scott Farb, managing principal in the Los Angeles office of real estate consulting firm Reznick Group. Pensions and investments

Nick Lesau, one of London's canniest property investors is starting to get back into the market after selling out at the height of the bubble. His investment fund "Max Property Group," is paying just 25% of peak 2007 prices. "Mr. Leslau set up the Max Property Group last month and raised £200 million ($329 million) selling shares in what was Britain’s first initial public offering this year. Interest in the stock was so great that Mr. Leslau cut the investor road show short by a week, but the share sale was still oversubscribed." NY Times

The Spanish banks are now the biggest property owners in Spain, and we feel the amount of real estate sloshing around unsold has reached critical mass. Refinancing this mess is going to be all but impossible when commercial property values drop by 75-80% - which they are going to.

After reading these two articles, it is fair to say the answer is - it depends. If you are a multi million dollar/pound real estate investment trust, and can pick up a property at 75% discount - yes. If you are a private individual, perhaps not just yet - unless you can negotiate a deal at the same level. 25% of peak value is my target price now and I feel this will be able to offer realistic returns - eventually - and only in markets that are likely to recover rather than be bulldozed such as being discussed for Flint, Michigan.