Many years ago, and on my first day as a fishing guide in Alaska, my new boss Glenn told me that if a grizzly bear charged, we should run for the float plane.  Naively I said, “But we cannot outrun a grizzly bear.” Glenn laughed. “I don’t have to outrun the grizzly bear; I just have to outrun you."

As a commercial real estate investor, your goal is to have comparatively more attractive returns than those provided in the bond and equity markets, on a risk-adjusted basis. Expected returns for commercial property investments need to be higher than similar duration US government obligations and can be lower than most public equities. With the 30-year bond trading below 3.5%, and the equity markets characterized by fear and volatility, private real estate investments currently own that float plane.

Recall that Fed Chairman Ben Bernanke promised low rates through 2013. Moreover, America’s balance sheet recession may produce five years of abnormally low bond yields.  Yes, we need to look over the horizon for inflation, and we’ll be talking about that soon.

Buying real estate based on existing cash flow with quality tenants can provide outstanding current income. Your valuations should be driven by existing leases. Assuming your new asset has a great location and a competitive cost basis, the vacant space may provide cash flow growth to compliment the asset’s in-place dividend stream.

We are in a decade of low yields, anemic stock market growth, and the occasional financial tsunami. As compared to miniscule US Government yields, stabilized core and select suburban core office buildings in primary and secondary cities can provide compelling returns. Do not be put off by IRRs that are below historic expectations so long as you are expecting comparatively high dividend returns based on in-place tenants.