Don’t Count out Real Estate just yet

Lee Paris looks like he doesn’t have a care in the world despite the fact that the commodity in which his firm, Jackson, MS-based Investlinc, deals is being bashed over every media channel the world over. Investlinc is a REIT, Real Estate Investment Trust, an investment vehicle that buys income-producing real estate and passed the bulk of income produced onto the shareholders.

“This sub prime business hasn’t dragged down the commercial market.” Says Paris. He goes on to say that it won’t. When asked why, Paris gives an answer that even he seems to think borders on the absurd, “this is America, we’ll fix it.”

Before dismissing this laid-back Southern boy as a pie-in-the-sky optimist, he may just be onto something. Despite what the news channels are saying, consider that while it’s true that Americans have pulled all the equity out of their homes just before the prices dropped so drastically. In doing so, many Americans not only found themselves upside down in their home equity, what passed for a savings/retirement account was completely obliterated. However, commercial real estate doesn’t not operate on the same principles as a condominium.

For most American’s, owning a home is a cost. The price of the house may rise, and the equity in that rising commodity may increase if it isn’t borrowed against to heavily. But those paper profits do not, in fact, create revenue. And therein lies the difference between residential and commercial real estate.

For commercial real estate, who qualifies for how much loan money is a simple matter rental income minus expenses. That being the case, the current liquidity crunch has not had the same affect on commercial real estate as residential, which does not generate a cash flow. Even if that’s exactly what your local mortgage broker was begging you to believe last spring.

The banks gave themselves a severe scalding this summer from their sub prime follies, but loans still have to be made if doors are going to remain open. The banks are no doubt going to be pickier this time around because they can’t sell of the debt off quite so easily. Perhaps Paris’s observation that America will simply do what it does is not so wistful after all.

Whether or not you chose to think that Lee Paris has his head in the investment clouds, Investlinc boasts some pretty impressive results: Twenty seven consecutive returns of 9% or better.

“We’ve achieved results like this by only buying property with an existing 9% return.” Says Paris. He has partnered with Garo Kholamian of GK Development, Inc. to find properties to purchase. Kholamian cut his teeth buying property for Sears early in his career. It’s a simple formula, but even an optimist like Paris admits that a 9% existing return is getting harder to find.

With a tenet list that represents a who’s who of big box retailers, it will take a series of cataclysmic bankruptcies in American retail to start closing mall and shopping centers across the company. The issue for an investment like Investlinc is that liquidity crunch will so cripple the average American buyer that large retailers start to go bankrupt.

At the worst, Paris is saying “the crunch won’t last.” The man may be insane or have spent the summer in a monastery. He may be right. If not, the only thing to do is buy a lot of goldand at least one gun.