The problems in the credit markets and the slowing economy are catching up with commercial real estate but so far real estate has fared much better than the other asset classes.  As we enter 2009 there seemed to be a sense that the real estate sector can weather this global storm better than the commercial real estate market did in the early 1990s. The framework of commercial real estate has profoundly changed with measurement and reporting standards that have provide investors with a fair representation and full disclosure of real estate investment risk.

The Savings and Loan failure in the late 80’s ushered in many new standards that were designed to protect commercial real estate investment by issuing standards that have spread around the world.  In the age of real estate globalization, how have our due diligence methods and deliverables evolved to meet the needs of the 21st century commercial real estate investor?

In recent times of global investment the asset managers have learned not only to compete for business in their home markets, but in foreign markets as well, as a result markets have become more sophisticated.  The convergence of a global economy required a serious re-examination of many investment paradigms and mythologies, to develop a more accurate understanding of the complexity of the international commercial real estate market.  A fundamental approach using standardized information to examine real estate value across national boundaries was needed.

To assist the investor in ascertaining risk in the emerging international commercial real estate market the industry adopted the Global Investment Performance Standards.  The GIPS applies unified standard metrics to value an investment performance and potential, which relies heavily upon professional due diligence data as a decisive factor for cross comparisons in a world market.   The accuracy of the input data forms a basis for a complete, fair and comparable presentation of an assets investment performance.

For investment firms outside the U.S. or European Union, being GIPS compliant has provided legitimacy and confidence that the commercial real estate investment meet the highest standards of financial reporting.   The GIPS reports a properties 10 year performance, when possible, to benchmark a properties past performance.   Matched with a 10 year proforma, an investor is able to develop a linier performance model from which to ascertain probability of investment risk and returns, while the standards seek to mitigate ethical irregularities across the wide differences in national business practices. 

If our market performs as predicted in the coming year, we can thank those who spent the thousands of man hours invested in developing standards which have held up the commercial real estate market surprisingly well, considering the depth of the current credit crisis.   Twenty years ago the commercial real estate sector lead the financial sector failures but not today.  In 2009 the financial markets will test the commercial real estate investment standards at home and around the world even further.  What we have learned comparing the differences from twenty years ago is good standards provided good results.   A simple truth we need to constantly refine and protect in service of the 21st century investor.