News Release
For further information, contact: Robert R. Tweed: President Tweed Financial Services, Inc. (626) 588-1520
Investing in Real Estate on a Value Basis
By Robert R. Tweed Tweed Financial Services, Inc. Investing by and large comes down to three broad approaches – growth, value and trend. Growth investing is based on expectations for the future. Value investing looks at present realities. Trend investing relies less on an analysis of growth or value standards and more on the current market trend of an investment class or sector. At Tweed Financial, our goal is to identify value investing opportunities that meet our clients’ investment criteria. These are investments where cash flow and tax benefits justify the value of the underlying investment rather than projected future growth. By focusing on current value, investors strive to avoid overpaying for assets and reduce risk. In our opinion, commercial real estate currently represents an attractive value investment. The surge in real estate values over the past seven years has impacted primarily residential markets. Commercial property values have been much slower to increase. As a result, most new development has been in residential markets.
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Residential Appreciation Vs. Commercial Values
250 225 200 175 150 125 100 75 50
Oct-93 Oct-94 Oct-95 Oct-96 Oct-97 Oct-98 Oct-99 Oct-00 Oct-01 Oct-02 Oct-03 Oct-04 Oct-05 Oct-06
S&P GRA Composite Commercial Real Estate Index S&P Case Shiller Nat'l Home Price Index
The S&P/Case-Shiller® Home Price Index is designed to measure the growth in value of residential real estate in various regions across the U.S. The S&P/GRA Commercial Real Estate Index (SPCREX™) is designed to be a reliable and consistent benchmark for commercial real estate prices in the U.S.
Source: Standard and Poor’s Alternative Indices, www2.standardandpoors.com.
Commercial vacancies have declined nationwide over the past three years due to limited new construction and business growth. This, we believe, has given property owners the leeway to increase rental rates, adding to the attractiveness of many commercial properties. Commercial real estate loan defaults are at the lowest levels in history, a further sign of the health of the market. Commercial real estate opportunities also allow investors to narrowly target investments by use and geographic region. For example, an investor
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might choose to invest in retail complexes or medical facilities in the fastest growing metropolitan areas, or a specific size of office buildings. While investors have the option of purchasing individual commercial properties directly, achieving a diversified portfolio of commercial properties can lower the risks associate with a single property, such as the local economy, natural disasters and even structural obsolescence. Among the types of investments that facilitate diversified ownership of commercial real estate are public and private equity Real Estate Investment Trusts (REITs), mutual funds, Tenants-In-Common properties that allow investors to use 1031 exchanges to avoid losing portfolio value to taxes when they sell investment real estate, and more. The growth of the 1031 TIC market in particular has given clients new ways to diversify their real estate portfolios into office buildings, hotels, apartments, industrial properties, retail facilities and oil and gas properties. 1031 exchanges must be equal to or greater in value than that of the relinquished property. You also need to be aware that 1031 exchanges are subject to the various restrictions set forth in Section 1031 of the Internal Revenue Code. Consult with your tax advisor for actual tax consequences. A good investment in commercial real estate should offer investors a means to minimize the impact of taxes, meet income requirements, optimize future investment value, and match investments with the client’s long-term objectives. We welcome your questions with regards to current market values and opportunities where we see potential for solid returns to investors. Remember, all investing carries risks and there is always the potential to lose money as well as experience gains. When using 1031 exchanges and investing in real estate make certain you have the right advice.
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Investments in real estate may not be appropriate for all investors, may have limited transferability and may lack liquidity. Real estate values may fluctuate based on economic and environmental factors. An investor should consider carefully the investment objectives, risks, and charges and expenses of the investment company offering variable annuities and read the contract prospectus and the underlying fund prospectus for this and other information before investing. Because TIC and oil and gas interests are sold as securities, they are available only to accredited investors. For an individual, this means at least a $1 million net worth or yearly income of at least $200,000. TICs are subject to upfront fees and expenses that may impact investor returns and outweigh the tax benefits.
Robert “Rusty” Tweed is president of Tweed Financial Services, Inc. an independent, comprehensive financial planning and investment management firm. Tweed has educated thousands of investors on real estate investment and estate and trust issues through his popular seminar series since 1997. A Certified Estate Advisor, he is a member of the Tenants-in-Common Association and the National Association of Financial and Estate Planners. Tweed Financial Services offices are located at 2060 Huntington Drive, Suite 1, San Marino, CA 91108 and 9595 Wilshire Blvd., Suite 900, Beverly Hills, CA 90212. 626-588-1520. www.tweedfinancial.com.
Securities Offered Through CapWest Securities, Inc. Member FINRA/SIPC/MSRB.
Tweed Financial Services, Inc. and CapWest Securities, Inc. are non-affiliated.