By Jeff Cox, CNBC.com Staff Writer
In the face of some otherwise-daunting obstacles, commercial real estate is proving to be an attractive area for investors looking for bargains as loans come due and foreclosures mount. Analysts have been warning for months that commercial real estate could be the next shoe to drop in the subprime mortgage collapse that came to a head in 2008. But with signs of thawing in the securitization markets and indications that investors are ready to come to auction when properties are on the block, the idea that the industry represents a major looming danger for the economy is losing traction. Prudential Financial executives, speaking at a market outlook discussion Tuesday in New York, said they are "reluctant optimists" on the space. Marc Halle, the firm's managing director of real estate investments, compared the industry to a "fly wheel" that likely will accelerate in the years ahead. "As it cranks up, it's going to start going pretty quickly in the next three, four years," he said. "We think the recovery is going to be very different this time." Halle acknowledged that distressed conditions are likely to intensify in the market but does not expect to see "wholesale foreclosures." Instead, real estate investment trusts could become a more attractive asset class in a slowing economy as interest rates stay low and REIT dividends remain solid. For instance, the Vanguard REIT Index ETF ( VNQ), which tracks the Morgan Stanley Capital International US REIT index, is up in price about 7.6 percent in 2010. But perhaps as importantly, the fund is paying a healthy 4.64 percent dividend, providing allure as the stock market grinds through the summer.
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