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Jan 6, 2012

Caution is the Watchword

By: Leor Margulies

The REIT index went up 9.8 percent while at the same time the TSX went down 10 percent. Income-producing real estate was clearly a profitable asset and the institutions and pension funds were clearly the largest players in this marketplace, being involved in over 60 percent of all income-producing property transactions. This “insatiable appetite for yield” by the institutions pushed cap rates to some of their lowest in history. Even private investors move up the risk spectrum to obtain product.

According to Sheila Botting, national leader and partner of Real Estate, Deloitte & Touche LLP, retail was the best investment product with retail sales continuing their climb and cheap debt driving further acquisitions. Retail sales in 1997 were averaging $430 per square foot and increased to $590 per square foot in 2011. Interestingly, Apple made up 10 percent of the entire retail sales spectrum.

Two economists, David Rosenberg, chief economist and strategist, Gluskin Sheff + Associates Inc. and Avery Shenfeld, chief economist and managing director, CIBC World Markets Inc., addressed the question of “Is the recession over?”

Rosenberg is known for his perpetual doom and gloom forecasts, so, according to him, the 1990 recession has never really ended. He pointed to the high levels of government and consumer debt, the anemic growth rate in the U.S. of 2.4 percent of GDP growth, whereas in a positive market, the growth should be closer to eight percent. Growth for 2012 has been predicted to be only 1.7 percent in the U.S. instead of the four percent predicted by the Federal Reserve Bank.

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