{"id":1004054046,"date":"2012-12-05T13:20:20","date_gmt":"2012-12-05T21:20:20","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004054046"},"modified":"2020-05-13T02:18:52","modified_gmt":"2020-05-13T10:18:52","slug":"insanity-the-new-norm","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/insanity-the-new-norm\/","title":{"rendered":"Insanity: The New Norm"},"content":{"rendered":"

<\/em>Insanity: doing the same thing over and over again and expecting different results.<\/em><\/p>\n

-Albert Einstein<\/em><\/p>\n

<\/em>By Kenneth P. Riggs, Jr., Chairman & President of Real Estate Research Corp.<\/em><\/p>\n

\"\"<\/a><\/p>\n

We must be an insane lot. We\u2019ve seen this play before, performed by the same actors, and for some reason, we think (perhaps \u201chope,\u201d is more accurate) that this time, things will turn out differently.<\/p>\n

But it shouldn\u2019t take Einstein to tell us that it is unlikely we will see a different outcome during this fiscal crisis. Not only are we up against another debt ceiling, but we are also facing the \u201cfiscal cliff\u201d of automatic tax increases and cuts to domestic\/defense spending, which this same administration and Congress concocted when they were unable to come to agreement about raising the debt ceiling last year. As a result of that debacle, Standard & Poor\u2019s lowered the nation\u2019s credit rating to AA+ (the first downgrade in our nation\u2019s history), the stock market tanked, and investors were left holding the bag. This time, both Fitch and Moody\u2019s have already stated that they will lower their credit outlooks for the U.S. if lawmakers do not take meaningful steps to reduce the nation\u2019s debt burden. Meanwhile, the stock market leaps at any hint of success, and falters when the political commentary is less hopeful.<\/p>\n

Although it is hard to believe that the administration and Congress will be so negligent again, some investors do not expect an outcome to this year\u2019s fiscal crisis that will be any better than last year\u2019s crisis. As a result, many investors are taking steps to reduce potential tax increases for 2013 while maintaining their positions for possible bull market returns in case an agreement is reached by year\u2019s end. While some companies and investors are selling real estate and other holdings in 2012 before capital gains taxes increase, other companies are even borrowing money in order to issue large dividends to stockholders so companies can avoid the tax consequences as a result of the fiscal crisis and the twisted political environment that are due to take place in 2013 and beyond.<\/p>\n

There is some sanity in this crazy world, however, as reflected by the relative steady returns that investors have been able to earn for commercial real estate compared to more volatile investments. Commercial real estate isn\u2019t glamorous, but as shown in the accompanying graph, the spread between RERC\u2019s required pre-tax yield rates for the \u201cAll Property Types Average\u201d and 10-year Treasury continues to climb at a reasonable pace (see third quarter\/fall 2012 RERC Real Estate Report<\/em>), and commercial real estate is well on its way to recovering the peak performance earned in first quarter 2009.<\/p>\n

\"\"<\/a><\/p>\n

As we recognize that the insanity in this crazy world is our new normal, the best investment advice RERC can give investors is to learn from the past. As such, our expectations for 2013 are:<\/p>\n