US Federal Reserve officials have said US commercial real estate is expensive. That is not stopping the world’s biggest money manager from saying it is time to buy.
BlackRock Inc said property can deliver average yields of 3.5 percent, compared with 3.4 percent for US investment-grade bonds and the S&P 500’s dividend yield of 2 percent.
Demand is spreading as far as Asia, with Mirae Asset Securities Co buying US real estate, including some of the Seattle buildings that house Amazon.com Inc.
“The US commercial real estate recovery still has room to run amid reflation and resilient rental yields,” BlackRock London-based global chief investment strategist Richard Turnill wrote in a report on the company’s Web site on Monday.
New York-based BlackRock oversees US$5.1 trillion worldwide.
Property prices have risen enough that Fed Chair Janet Yellen is taking note.
Commercial real estate is “high,” she said in January.
Federal Reserve Bank of Boston President Eric Rosengren said at around the same time that he was also monitoring such assets.
“If you look at prices of commercial real estate, particularly multifamily properties, they have been going up very rapidly in many parts of the country,” he said.
Appetite for real estate shows the hunt for yield is alive and well as investors strive to improve on payments available from government debt.
Even though the Fed is raising interest rates, 10-year US Treasury yields have been stuck at about 2.5 percent. The highest they have been in the past year is 2.64 percent.
The Moody’s/RCA Commercial Property Prices Indicies, which cover apartment, retail, office and industrial sectors, rose about 8 percent in the year ended on Jan. 31. The S&P 500 gained 17 percent and Treasuries were little changed.
Fed rate hikes are a sign of improving economic growth that will support property prices, said Park Sungjin, the Seoul-based head of principal investment at Mirae Asset Securities, which oversees US$8 billion.
Last year, Mirae Asset Securities also bought the buildings that house State Farm Life Insurance Co in Texas, Park said.
“The Fed can hike three times this year,” he said. “Maybe they can hike more. That means the economy’s good.”
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