Domestic real estate investment trusts may be close to fully priced, according to Principal Real Estate Investors’ 2011 commercial real estate outlook report.
The institutional real estate manager’s report suggests a reasonable scenario going forward could be more range-bound prices in this category until there is more clarity on the long-term economic outlook and rising Treasury rates impact the cost of capital.
The report also notes that while commercial mortgage-backed securities prices rallied strongly in 2010 as improvement in the CRE value led to a favorable reassessment of the adequacy of subordination levels to absorb potential losses, given significant differences across CMBS portfolios and vintages, PREI believes investment selectivity will continue to be important going forward.
