Originally posted on May 18, 2020.
Coronavirus Infects Stock Market: Part XLVIII
You can’t time the market. Don’t even try, because you just might end up being wrong.
Consider commercial real estate, for example. Anyone want to buy a high rise in Manhattan?
Let’s hop in our time machine and look back to 2018 when the stock market was having a rough year. The DJIA ended the year down close to six percent.
Big bad pensions wanted nothing to do with stocks. They wanted the “safety,” the “reliability of,” wait for it—commercial real estate.
Let’s roll the footage (WSJ article Nov. 2018):
U.S. public pension funds are taking on more real estate, and at times some of the riskiest types of property investments, as they try to close their funding gaps.
American public plans with more than 20,000 members had an average 7% of their assets in real-estate investments at the end of 2017, according to a Wall Street Journal analysis of Boston College’s Public Plans Data, which contains the most recent numbers available. That is up from 4% in 2006, representing more than $120 billion in additional pension money flowing into real estate.
Some of this increase is due to the construction of new properties designed to be sold later for a profit. These so-called opportunistic investments by pensions grew nearly sixfold between 2006 and 2016 even as allocations to “core” existing properties remained flat, according to an analysis by CEM Benchmarking.
One pension consultant advised an increase in “core” (read commercial) real estate, probably because it was going up in value, and more than likely, assets that are going up are an easy sell to the pension board.
Imagine the 30-foot conference table, the business suits, the presentations, the hubris, and you get the picture.
Pension boards are all about protecting jobs: their own that is.
If some fancy consulting team advises real estate and then the pension fund follows their advice, then there’s no one to blame. Perfect.
Here’s what our billion-dollar soothsayer said:
“In a core property, you have a known source of income on day one and, depending on the lease structure, you have a pretty good understanding of future rents. Versus something you’re going to build today, which you’re not even sure if you’re going to have a tenant.”
How’s that known source of income working out?
Originally posted on Your Survival Guy.
