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CHICAGO-During a recent gathering hosted by the Real Estate Investment Association, several industry members weighed in the trends that are spurring funds into the local real estate market.
Michael Mounts, a principal at Bank of America, admitted that real estate as an investment has had an extraordinary run compared to a decade ago. "It's now a respectable asset class," he told the audience. In the past, he explained, "real estate was an alternative investment--an individual investment. Few pension funds, for example, would invest in real estate."
Today, turning real estate assets into liquid investments have made the market much more appealing. "We take large real estate loans, pool them, sell them as bonds," Mounts said. "The key going forward now is picking assets." Investors and lenders will need to be more selective moving forward, he continued, weighing in interest rates and regulatory action that can make or break a deal.
Timothy Buss, a vice president at Lehman Brothers, agreed that making an investment liquid has been key to his business. "It is to a business' advantage to lock in good rates long-term," he advised the audience.
Businesses are not the only ones trying to lock in good rates, chimed James West, a vice president with Mid-America Bank. The cost for building materials have made it difficult to keep supply up. "Petroleum-based products have gone up approximately 15%," he said. With land costs rising, margins for buildings are slumping, West said. The result will be a need to review operating costs while looking at less expensive land in second- and third-tier markets.
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