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Goldman Forecast On CRE REITs: "Flat To Down 15%"
It is sad that modern capital markets have gotten to a point when neither fundamental nor technical analysis matters. The only question is how many dollars with the Federal Reserve print tomorrow and how higher will that push stocks. For those deluded amongst you who still believe 10,000x EV/EBITDA is marginally to quite-marginally rich, and don't feel like chasing trends and passing the hot potato to the latest Down syndrome afflicted E-Trade client, here are some observations on arguably the most overbought (by a metric mile) sector, REITs, courtesy of masters of the (metric) universe, Goldman Sachs.
In short: at some point in the near to very far future, REITs are going to get pounded. Why? Cause the 85 Broads said so:
The GS REIT Team view: Focus on names best positioned to “capitalize from the crisis”
- Cautious coverage view: we expect relative underperformance versus the broader S&P 500 Index as CRE trends lag the economy by 12-18 months.
- Our total return forecast: flat to down 15% (which equates to a price-only decline of 20%-25%)
- Primary concerns: valuation still unfavorable, deteriorating growth trends, challenging funding market (over $75 mn still tough to do)
- CRE values declining: cap rates to increase 300-500 bp from the lows, or a price decline of 30%-40% from peak levels
And some highlights of why Goldman believes REITs could be in for a protracted period of pain.
Not like any of that matters. The more troubled a sector is, the more likely it is that the government will shortly bail it out, of course. As such, it makes a lot of sense to be imprudent and follow Jim Cramer's advice: "if it has not filed for bankruptcy yet, it can only go higher." Vaya con dios.
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that's what all those reit phuckers get for running their deals through bac/ml and not the house of hank.
bianco out yet again trying to outdo abby joseph bigmouth with an end of year spx 1100 call.
he raised earnings estimates for 09 again on the 28th.
the thundering herd is bullish once again.
Just to add some thoughts to the bearish argument for REITs...
Look at the implied vols for the options on REIT ETFs. Available for free on yahoo or ivolatility.com.
IVs for these securities have not broken to new lows even as the group has continued to rip. That is a strong tell that options players still see volatility ahead for the group. And the IVs are still a lot higher than the CBOE VIX.
Options players know the real story...
Unrelated laugh of the day. Timmy kicks off the $ 4 Billion PPIP yesterday. Yes. That's with a " B " . That'll fix this mess and jumpstart the debt machine. Youbecha' !!
Musta had a hard time finding partners, ya think...??
For anyone out there who hasn't yet figured it out: commercial real estate is f**ked, and everything associated with it is f**ked, including the banks.
CRE is not fucked; the banks that hold the loans and the weaker REITs are fucked. There is a ton of money on the sides waiting to pick up the loans and properties at the right price.
To rent it to the new businesses that don't exist, or the new retailers chasing fewer and fewer consumer dollars?
What was the actual price for a gemstone quality property like 250 Montgomery?
the right price! LOL
I've heard of a few funds formed to buy up those properties at the right price..... and that price is NO HIGHER THAN 15% OF PEAK VALUATION.
Sorry, Pal. CRE is fucked.
Tyler:
You be better served to keep the down syndrome comments to you intelligent self. Thank You
try not to write like an illiterate douche when implying others are stupid kthx
I think he meant to avoid insulting the handicapped.
However written, I think the previous poster was suggesting that a little sensitivity might be in order.
Anybody have any promising REIT short candidates?
MAC has a poor balance sheet and anecdotally, there's nobody working construction at their Santa Monica Place center (Which has been under construction for years. And they claim "The center is making terrific progress, and we plan to open the new Santa Monica Place on Aug. 6, 2010"...um not gonna happen).
Either they're out of money, or the lender is, or the lease-up has been inadequate.
Agree, and would add DRE near the top of the list. But I do have to say that I have puts on these and others.
CRE levels down 30-40%? Huh? Properties are already trading down at least that much.
That is the joke behind their cutting edge analysis at GS.
If a building is for sale in a forest, and there's no one around who wants to buy it (even if they could), does it still have a value?
Cap rates are going up by 300-500 bps? Well why not 800 or 5000?
If Vegas is a CRE canary in the coal mine like it was with subprime and residential RE, when you attempt Price Discovery here, you soon discover that there is no price. Sellers won't sell for the low amount that any prudent buyer would offer.
The Vapors were right, I think we are turning Japanese.
JTS
If this whole thing is going down the tubes, why is
Tiffany's opening a new store, in over-the-top opulence, in Las Vegas' City Center, a self contained city-in-a-city, itself on a scale of opulence that would make Donald Trump blush?
"18 million square feet over 67 acres, with luxury residences and hotels, meeting and convention facilities, boutiques, clubs, and restaurants"
City Center will open in just 8 weeks and hiring notices for 10,000+ jobs just went in the mail today.
http://www.jckonline.com/article/355744-Tiffany_Co_to_Open_New_Store_in_...
How can this be?
Please don't tell me that this is going to be a Marie
Antoinette moment because the ability to control public demonstrations has come along way since then.
It's a mirage. The desert will reclaim Vegas.
If wise business decisions were being made then we would not be in this mess to begin with.
I have to admit to actually holding DRV overnight now, due to Monday's complete insanity. Was able to sleep last night by just thinking about sCReAMER pumping IYR at the peak. Don't think I'll have any trouble again tonight.
We're in the same boat. I loaded up on DRV at $18.50 and below. Switched my SRS holdings over to make up for all the beta decay over the past few months. Still saving some ammo just in case but my God I hope the top has past and I can finanlly see some positive compounding. Today was crazy though - still shows how the market can still be highly manipulated and should give all bears pause.
SPG still has such a strong consistent bid. One of the reasons I hesitate to hold DRV instead of just trading it (based on how Simon is trading at the time). Also feeling a lot more exposed now that I'm out of the NLY long hedge (and HTS) after Monday. I'm of course hoping for a quick spike in order to free up the funds and avoid the unsystematic risk of action against shorting or levered ETFs altogether.
Sounds like Ackman doesnt think to highly of SPG.
http://seekingalpha.com/article/163359-bill-ackman-s-pershing-square-q2-...
"if it has not filed for bankruptcy yet, it can only go higher."
TD, Please use this quote as often as possible. It will never get old for me.
ALLLL ABOARRRRD......the FAZ train
Your comment is precisely why the market will continue higher. There are so many people that believe the market will go lower that until every dollar is milked from every bear, we will just continue higher. As so many have stated, markets no longer trade on technicals or fundamentals and this will end badly, for everyone!
that's the worst device out there. never again will i hail to FAZ. options are your only hope, and buy leaps on this shit if you want my opinion.
"It is sad that modern capital markets have gotten to a point when neither fundamental nor technical analysis matters."
Given the fact that there is essentially 0 transparency, it is impossible for fundamentals and technical analysis to matter. No?
I'm really really tired of telling people the emperor has no clothes. Does this have an end? I don't care how bad it is, just open the damn books. This is sickening. I'm going to go throw up dinner now.
The 'new normal' dictates that the biggest of the sickest get the cheapest money. So I am betting that SPG gets anointed as the feds agent. I have SRS paired with long Simon.
My SRS is giving me agita... :(
(please, just lie to me....tell me it's gonna get better...)
Yeah, what the fuck is up with SRS. I have gotten reamed on that one big time. I am still in it, but it's getting tougher and tougher not to capitulate...
Higher vacancies rates, lower rents...so what's new. Government, business and household debt levels are so high they can never be serviced. So the game is FED money creation which allows the game to continue. Why fight the world's central banks? The beauty of globalization is that all countries lose if they don't play the game with the FED. IYR and all equities will continue higher as a result of free money. Cramer is right! Fundamentals, cap rates, etc. don't mean a thing.
No but wait a minute. I think since all here seems to agree that the market is manipulated,and that shorts are constantly attacked. And since the market has gotten too high,and it seems Wall St. needs to attract new buyers,so they need to bring prices down a bit,to replenish their inventory. And since obviously bears stopped shorting since they gotten burned so many times,so obviously GS this way is giving permission to its hedge clients to go ahead and short that sector?(just a thought by a humble person)
TD - Classic.
The reit trade is simple. REIT Common equity is a train wreck:
a). They continue to dilute via share issuance
b). Dividend payouts will continue to decline
c). Refinance will be at painfully low leverage relative to the past
d). Property values/rents in decline
e). Capital structures overweight with preferred stock & converts
f). Asset base can't grow without accretive debt finance (which is non existent)
g). All asset types are overbuilt - Saturation
Best case - REITs are dead in the water for years.
Worst case - persistent bid evaporates and REIT common = Mushroom Cloud
You might as well combine a). and b). - since so many shareholders voluntarily choose their div payouts in stock now. Seriously, I know PMs who hold many of these names personally, and they choose the 100% stock div election for their own accounts. I want to blow a gasket, but if we ended the score today they would have me skunked...
Only problem is GS was out with a note on Aug 14th saying REITs were at bubble level. So far, that call was as prophetic as their $200 oil call.
Only problem is GS was out with a note on Aug 14th saying REITs were at bubble level. So far, that call was as prophetic as their $200 oil call.
So True. Cost me a bunch of rectangular little green pieces of paper, that call.
Take a look at SRS. It's ready to EXPLODE to the upside with a spike not seen for six months.
SRS WILL SPIKE ON AN "EVENT" . DE-LEVERING TO COME WILL CAUSE POWERFUL DEFLATION IN REAL ESTATE AS THE JOB LOSS OVERWHELMS THE RECOVERY DREAM. THIS IS A SECULAR BEAR AND PATIENCE WILL BE A VIRTUE.
dey need all da empty buildings to putt all av da munnie on da sidelines.
"down-syndrome affected etrade user" LMAO Awesome!! I'm glad you weren't talking about me. I use Ameritrade. Of course they bought out TD Waterhouse where I used to try to daytrade 100 shares of EFAX and JCOM back in 1996 with a dial-up connection. LOL Now THAT was retarded!
Thank you ZH crue for not selling us out.
Biff
For some reason some investors think that CRE/REITs will be a hedge against inflation because it is a "real asset"! They just can not fathom that real-estate valuations are primarily credit and cash-flow driven. Assuming the Fed's strategy of a weak dollar continues, the consumer class will have to deal with higher commodity prices and will lower discretionary spending.
This does not bode well for businesses which inherit debt priced during the bubble years. Any new capital entering now can do much better. However most REIT bulls do not get it.