Investors are Flocking to Commercial Investments.

“Real estate offers tax advantages and leverage advantages that are not easy to obtain with routine stock and bond investments,” Moore says. “The [Internal Revenue Service] allows you to write down the value of improvements over 271/2 years for apartments and 39 years for other commercial properties.”
An investor also can take depreciation of a property as a tax-deductible expense to shelter other income, he adds.
Further, Moore continues, investors can leverage their investment by making a low down payment and borrowing against the property when its value increases to make additional real estate purchases.
“Nowhere else can one borrow upward of 80 percent of the value of an asset to benefit from an increase in 100 percent of the asset,” Randall says. “If a property increases in value by 10 percent, the investor actually receives a 50 percent increase in that 20 percent down payment.”
Also, by using a tax-deferred exchange, investors can invest the full proceeds from the sale of one or more buildings that have appreciated in value into the purchase of one or more other buildings without paying capital gains taxes, Sturm says.
However, tax benefits should not be the only reason for investing in commercial real estate. Investors also can take emotional satisfaction in pointing to the commercial property that they own. “Real estate allows you to see, touch, and feel your investment,” Randall says.
“With real estate, you own something tangible,” Brown agrees. “You can go out and knock on the walls. That makes people feel comfortable. There's not the fear of losing everything.
“Another reason people feel comfortable with real estate investments is you can take an active role,” Brown continues. “You have more control of your destiny than you do with a stock or a bond or a mutual fund.”
Core Real Estate Investments Perform Well
During the past three years, “core” real estate investments have significantly outperformed all major asset classes on a risk-adjusted basis, according to a recent Lend Lease Real Estate Investments report.
Two basic characteristics define a core style of investing, the report states: income from core holdings is stable, predictable, and constitutes a significant proportion of total return, generally 70 percent to 80 percent over the holding period; and core investments are readily marketable, enabling an efficient exit and minimizing liquidity risk.
The complete report is available at http://www.lendleaserei.com/.
Story by Jerry Demuth, CIRE Magazine.