Global Perspective on Commercial Real Estate

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Last Thursday, the Finance Academy had the opportunity to have a very interactive dialogue with Mr. Robert Best from Principal Financial Group in Des Moines. Mr. Best is a Tippie College of Business alum. Currently, Mr. Best travels all around the globe as a Managing Director in the Principal Real Estate Investors division.

Mr. Best started the conversation by providing an overview of commerical real estate as an asset class, comparing and contrasting it with more traditional asset classes. When looking to diversify a portfolio, commercial real estate can offer differentiation because it doesn’t get valued as frequently as stocks and bonds. That is, it has a lag effect with whichever direction the market is going. Mr. Best described the different types of commercial investments based on public/private and debt/equity classifications.

When thinking about the trends in commercial real estate, Mr. Best brought up great examples in class to illustrate the points. For example, he highlighted the differences in working preferences between Generation Y and the other generations in the workforce. Generation Y prefers a lot of flexibility with their working hours and location, which is causing a shift in the previous demand trends for office space. In addition, many companies are moving to alternative workspaces to reduce the amount of office space a company requires.  While popular outside the US for some time now, CBDs (Central Business Districts) are coming back en vogue. People want to live, work, and shop all within walking distance of one another and commercial real estate is changing accordingly.

Real estate has five lifecycle stages and Principal has a different strategy for each lifecycle stage.  Nick Johnson brought up the popular trend of converting industrial space into lofts and we discussed the strategy that Principal uses for these type of repurposing projects. Lofts in old industrial spaces were one of my favorite topics prior to returning to graduate school (when I had time to watch home improvement/finding shows) and it was interesting to think about them from the investors’ perspective.

Mr. Best concluded our discussion with an real-world example. We analyzed the example based on what we had learn previously in the discussion. Best of all, he promised to follow-up with us to let us know what actually happens so we can see if our analysis proved true.

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