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Commercial Real Estate

John Alvarado: Clarity on the Horizon?

Currently, the biggest detractor of value in commercial real estate is uncertainty. A parallel comparison can be made about the effect of the election. What will be the capital gains tax policy? How will fiscal policy affect interest rates? Will there be stimulus tactics that fundamentally change the attractiveness of real estate as an investment?
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John Alvarado

Currently, the biggest detractor of value in commercial real estate is uncertainty. Think about it this way: If you have a building with a 10-year lease to a high-credit tenant, you know almost to the beep (slang for basis point) what that asset is worth and that there’s a deep pool of buyers that would pay handsomely for that cash-flow stream. If, on the other hand, you own an asset that has two years remaining on its major tenant’s lease, what is that asset worth? That’s a much more difficult question to answer.

A parallel comparison can probably be made about the effect of the election. What will be the capital gains tax policy? How will fiscal policy affect interest rates? Will there be stimulus tactics that fundamentally change the attractiveness of real estate as an investment?

Each candidate offers vastly different paths; therefore, right now, there is no clarity in the market. One way or another, there will be clarity after Nov. 7—and that will be welcome news. We have seen great improvement in the capital markets, with interest rates at an all-time low. However, sales volume is down nationally approximately 10 percent.

My sense is that once the election is over, we will have a clearer path to a more robust sales environment. And that’s good news for everyone.

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