The Best House in a Bad Neighborhood

Oscar Wilde, who penned the adage, “It's not whether you win or lose, it's how you place the blame,” would have fully enjoyed the clever response of US Government officials to a (then) pending Standard & Poor’s downgrade of US Treasury debt. Recognizing S&P’s growing reputation for busts in financial modeling, Treasury Department flacks said they “noticed a $2 trillion error in S&P’s math.” What with August being a sacred holiday for federal employees and the abject failure by elected officials to reign in deficit spending, who can blame the few Treasury minions still in town for laying the mess back on S&P’s doorstep.

S&P’s embarrassing error is a red herring. The crux of the issue is that our economy cannot bear the burden of national debt as rosily projected by the Congressional Budget Office. Debt obligations in the U.S. are projected by various organizations to increase to unsustainable levels.

The calamitous downgrading of US Treasury debt is likely not going to have a negative impact on your real estate investing during the near term. After all, yields on government debt went down during the debt ceiling debacle as there is simply no better safe haven for investors during this gloomy economic summer.

Spinning the positive, consider the possibility that slow economic growth, low treasury yields and volatile capital markets portend heightened demand for real estate investing. Offered an investment opportunity in a stabilized asset with predictable revenues, many limited partners may welcome single digit dividend yields. Sure, I am a real estate faithful, but even agnostics should see the merits in CRE investing as compared to Treasuries that offer low yields and possible price erosion and the capital markets that are currently marked by extreme volatility.