I’m not so much concerned
about the return on my money
as the return of my money.
– Will Rogers, 1933
Billionaire Bill Gross of PIMCO makes the case for an alternative to money market accounts in his December newsletter. With interest earned on money markets and bank accounts in the range of 1 to 50 basis points he suggests looking at alternative forms of investment. His conclusion is that utilities are the place to park money in this environment in order to achieve a 5-6% yield.
What his analysis does not consider is commercial real estate. Below is a list of the cap rate targets for the end of 2010 prepared by ULI. While real estate is much less liquid than utility stocks, well located, solidly underwritten commercial real estate is expected to achieve unleveraged returns in the 8-10% range. Considering how real estate values have dropped, commercial real estate can now be purchased for a substantial discount to replacement cost. I believe that now is the time to buy well located properties for cash flow today and substantial capital gains in the future.