Wave of real estate investment

After a prolonged drought, lasting from 1989 through 1994, a tidal wave of new money is now crashing into the real estate capital markets. This is happening for four reasons. The sustained economic recovery has allowed the reinvestment of profits. Second, a strong economy is coupled with low interest rates. Third, commercial real estate increasingly is sold on the security markets through public ownership of real estate investment trusts (REITs) and commercial mortgage backed securities (CMBS), a type of bond. CMBS issues increased from $3 billion in 1993 to $30 billion in 1996. Finally, there is pension portfolio diversification. Following the enactment of ERISA, the federal Employee Retirement Income Security Act of 1974, real estate attained “asset class” status, and a flood of direct real estate investment followed. Today, pension funds allocate between four percent and five percent of their portfolios to real estate.