Commercial Real Estate Finance

Most real estate professionals operate in a particular asset class because it is the one they know best.  Whether they happen to have been exposed to it first, or cut their teeth on it through experience, it seems to hold true.  But lets be objective here for a moment.  After having suffered what seems to be the worst of the economic downturn, and its subsequent impact on all types of commercial real estate, we sit in a very unique spot in terms of being able to assess which asset class is the most recession proof.  Let’s take a look at a few of the top candidates:

Medical Office – This is an industry with never-ending demand.  Given the fact that healthcare needs continue to grow, this asset class looks like a winner for many years to come. In addition with life expectancy on the rise, healthcare becomes that much more vital. Despite the economy, everybody needs healthcare, and that is usually something that consumers do not take very lightly.  Furthermore, with healthcare reform now in effect, healthcare providers can start to make informed decisions about their own future, which will provide clarity to the development and investment communities.

Senior Housing – We’ve been hearing about the baby boom generation aging for years now, but with each of those passing years, the truth gets closer to fruition. Despite the need to forever feel young, the fact is that as our population ages, the need for senior housing will be huge, and currently we face a supply shortage of senior housing for all types of seniors, be it independent living, assisted living, memory care or skilled nursing care.

Self- Storage – The bursting of the housing bubble means that fewer and fewer people can afford homes, which means more people will rent.  While this is undoubtedly good for the multi-family industry, it may be even better for the self-storage industry.  As living spaces grow smaller and smaller and become less and less affordable, the need to cheaply store all of your junk that won’t fit into your studio apartment becomes all the more relevant.  Couple that with the generally cheap rates, and you’ve got pent up demand.  Furthermore, it is an asset class with the least to worry about regarding inflation, or increases in operating costs.

Student Housing – There are more undergraduates and more college campuses now than at any time in history, and with a growing focus on education, there is no reason to believe that will change. Furthermore, it is common to house multiple students in one unit of housing, while being able to charge them rates as if they occupied the unit themselves.  Combine this with the migration from 9 month leases to full 12- month leases, and this asset class seems all the more lucrative.

Grocery Anchored Shopping Centers – Despite the retail sector suffering significant losses during the recession, the one aspect that wasn’t hit very hard at all was grocery anchored shopping centers.  Why?  Because people love food.  That’s why. Grocery chains have been doing surprisingly well during the past two years, and the retailers who feed (no pun intended) off of the traffic to grocery stores have fared better than their community center counterparts.

Gaming – They say that casinos are recession proof for much the same reason that people will buy $11 per pack cigarettes in Manhattan.  They are addictive.  Beyond this there are psychological elements that drive profits up, almost especially in times of economic hardship.  When you are at your most desperate, you gamble to get back on solid footing.  This is the same reason why poor people with very little disposable income buy lottery tickets.  Its not necessarily that they think the odds are in their favor, but somebody has to win, and the illusory fantasy that it could be them provides enough hope to get through the day without resorting to a bottle of Jim Beam.

So now that we’ve outlined the candidates, what do you think?  Which of the above asset classes is the most-recession proof and why?  Or did we miss one?  Share your thoughts int he comments section below.

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