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How Dangerous is the Stock Market for Your Commercial Real Estate Clients Right Now?

By Jim Gillespie | February 9, 2010

As a broker you definitely want to come up with compelling reasons for your clients to buy commercial property nowadays. Because there are a lot of people out there watching the commercial real estate market and waiting on the sidelines right now.

And at the same time, there are people who invest in both the stock market and in commercial real estate who are thinking, "The stock market has gone up almost 70% since last March, and look at what’s been happening with the price of real estate. With this kind of return in the stock market, why would I want to invest in commercial real estate right now?"

Well, a good reason is that the stock market appears to be in a very precarious position. As you’ll see in the video clip I’m going to provide for you, someone has been investing $50-60 billion in after-hours trading…buying stock futures. And this has had a tremendous impact on the total value of the stock market. And the market expert you’ll see interviewed in this video thinks that it’s probably the government that’s been making these purchases. (I mean, who else has an extra $50-60 billion to invest in stock futures nowadays?)

If hundreds of billions of dollars have been utilized to bailout Wall Street firms, and The Federal Reserve ended up buying approximately 80% of $1.5 Trillion in U.S. debt brought to auction last year, is it really that much of a stretch to think that $50-60 billion might have also been spent by the government to shore up stock values? The dramatic rise in stock prices certainly can’t be correlated to higher corporate earnings, or to private investors putting more of their own money into the stock market.

Which means that now may be the time for some of your commercial real estate clients to begin getting out of the stock market, and begin buying commercial properties. If the stock market has been counting on this major infusion of money in order to keep it going, it’s certainly not on solid ground. And the more you can get your clients who are invested in the market to recognize this, the more likely they’ll begin turning more towards commercial properties.

Click here for the video of CEO Charles Biderman being interviewed on Bloomberg, where he mentions that in his opinion, only the government would have this kind of money to make this big of an intervention into the stock market.

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