• Leo Kolivakis
    03/19/2010 - 07:34
    A recent joint poll by Responsible-Investor.com, the Network for Sustainable Financial Markets and AQ Research, showed more than 90% of investment professionals believe moral hazard has increased. And yet, global pension funds and wealth funds who manage trillions of dollars have not taken the lead to push for financial reforms. Why do they acquiesce on post-crisis reforms?
  • Econophile
    03/19/2010 - 00:48
    The fact that Google will not kowtow to Bejing and will walk away from the market of greatest potential is to me a commendable act. This is a companion piece to my series, "China's Fragile Economy, Its Housing Bubble, and What It Means To Us." China is not a liberal country, by far.
  • madhedgefundtrader
    03/18/2010 - 23:00
    The outlook for natural gas is terrible. Will this be the ETF that kills the goose that laid the golden egg? Torpedoed by contango. Sarah Palin’s pet project bites the dust. Sweating bullets in Qatar. Moral of the story: read the damn prospectus first. A new 100 year supply of natural gas will be a dead weight on prices for decades. Gas companies are racing to out-produce each other in the hope of offsetting falling prices with increased volumes. It’s sad to see such a great molecule fall on such hard times. Pitiful, really. (UNG), (CHK), (DVN), (XTO).

Goldman Sachs: REIT Valuation Back To "Bubble Levels"

Tyler Durden's picture




Goldman is out with a new piece which highlights some substantial cautionary language on perspectives before the REIT landscape. Not surprisingly, the biggest question mark is the digestion of the peak in CRE delinquencies which is expected to occur over the next 12-24 months. This is no surprise to anyone who has walked along Madison Avenue golden mile: the mecca of ultra high real estate, where a deluge of recently emptied storefronts demonstrates the deterioration for the highest tier of CRE. One can only presume how much harder hit the middle and lower end of commercial real estate across America must be.

While the worst of the current US recession appears to have passed, we caution that CRE trends are just starting to soften and will remain weak into 2011; as such, REITs should underperform the broader equity markets during the next stage of the recovery (6-9 months). In fact, we anticipate a decline in FFO of more than 10% for REITs next year, on top of the 15-20% expected decline in 2009. Hence, 2011 should be the bottom with growth resuming thereafter. Over the next 12-24 months, we see the combination of rising CRE loan defaults, deteriorating fundamentals (similar to the 2001 downturn), and more stringent lending standards (50% LTV loans at higher rates) resulting in a “challenging road ahead” for REITs.

And this most notable disclosure from Goldman on REIT valuations:

We believe investors should use the recent rally in shares (+42% since July 13) to reduce exposure to the REIT sector. REIT shares now trade at levels not seen since the “bubble years” in credit from 2004 to 2007, based on a current EV-to-EBITDA multiple of 14.3X, or an implied cap rate at the mid-6.0% level. In our view, the stocks are indicating one of two outcomes: (1) low cap rates are here to stay (similar to Europe and Japan) or (2) growth rates will be significantly higher than we have projected in the near term. We do not see either outcome as likely.

A peculiar change to a very cautious posture for Goldman, which does present some of the positives in the space, virtually all derivatives of "unlocked" equity and credit markets. Then again, while it took a few brief months to go from systemic gridlock to credit bubble mania courtesy of trillions of liquidity pumped into the market by the Federal Reserve, the inverse is just as likely, and any sharp and dramatic reversal in equities is likely to lead to a freeze in funding of the kind we say in December 2008 and again in March 2009.

At the same time, we are beginning to see signs of life in the CRE funding market with several recent unsecured debt issuances in the 5.5%-8.5% range, depending on the credit profile of the issuer. This compares with all-in rates in the 10%-13% range only a few months ago and, thus, a materially improved market for raising capital.

And here are some representative charts demonstrating the euphoria that has gripped investors looking for yet another bubble.

4.625
Your rating: None Average: 4.6 (8 votes)



by Anonymous
on Fri, 08/14/2009 - 09:46
#36708

Conviction buy list addition coming for CBL?

by inflationary (not verified)
on Fri, 08/14/2009 - 13:29
#36807

Once it's achieved the strenght and self esteem to be released into the wild with plenty of self justification and fibionacci support it'll not only survive but thrive.

recommended: good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions

by Daedal
on Fri, 08/14/2009 - 09:46
#36709

REITdiculus. This has been obvious for a while now. I guess GS acquired their shorts on the Reits, and is now queing dumb money.

by Anonymous
on Fri, 08/14/2009 - 09:49
#36713

NO SHIT SHERLOCK !

by Anonymous
on Fri, 08/14/2009 - 09:49
#36715

what about Alt-A's and Option ARM's in addition to CRE?

by Anonymous
on Fri, 08/14/2009 - 09:50
#36717

Does GS understand that all their research reports just make people wonder whether the prop desk is trading with or against them?

Any value in the reports is lost because of that. And I do think some of the reports still have value, it's just impossible to figure out which ones...

by JohnKing
on Fri, 08/14/2009 - 09:58
#36727

Yeah, just like the shell game on the corner.

by Sardonicus
on Fri, 08/14/2009 - 09:55
#36723

gee, they were just bullish on reits two weeks ago and they underwrote all the secondaries, 3rdaries, and 4thdaries that trash bins like SPG put out.

Not anything new I guess.  They packaged and sold real estate sludge to the world, had the unmitigated audacity to brag they were not infected by it, and then shorted everything they created and sold.

Did the same thing with all the Muni bonds they underwrote for the last three years too.

by Anonymous
on Fri, 08/14/2009 - 09:59
#36729

What's the best way to find out who underwrote secondary offerings?

by Sardonicus
on Fri, 08/14/2009 - 10:07
#36740

It is always mentioned in the SEC filings who the lead underwriters are.

by Daedal
on Fri, 08/14/2009 - 10:01
#36731

If you read any of the books from the 90's (Liar's Poker, Fiasco, Wall St. Meat, Monkey Business), this is all playing out the same fashion. Banks make money by blowing up their customers -- not always, but they work twice as hard to unload bad paper onto someone else. Pump and Dump helps them achieve that with bad quality assets.

 

 

by Anonymous
on Fri, 08/14/2009 - 10:03
#36735

of course!..after the secondary's are done now they turn on them.

MS

by Anonymous
on Fri, 08/14/2009 - 10:04
#36737

I guess it's time to get a few more people into SRS and then squeeze the $hit out of them.

by Anonymous
on Fri, 08/14/2009 - 12:19
#36963

That's right. You can't tell if they are bullshiting or not to suck more in.
Better to wait than short just yet.

by lizzy36
on Fri, 08/14/2009 - 10:11
#36743

Bank failure friday starting early?

FDIC Taking Colonial Into Receivership

BB&T To Buy Colonial BancGroup -

by Anonymous
on Fri, 08/14/2009 - 10:17
#36749

how do you calc a Cap rate again Tyler?

by SWRichmond
on Fri, 08/14/2009 - 10:26
#36755

"While the worst of the current US recession appears to have passed"

Current recession, eh?  Is this part of the strategy of "the recession has ended", and then we have another, deeper one?

 

by Gilgamesh
on Fri, 08/14/2009 - 13:16
#37057

CRE value decline slowing.  Must already be in recovery, using CNBC and Administration math.

08-14 13:03: US Commercial real-estate values fall 6.9% in Q2 vs. 10.8% decline in Q1, according IPD

by max2205
on Fri, 08/14/2009 - 10:26
#36756

GS speakath with forked tongue

by max2205
on Fri, 08/14/2009 - 10:27
#36758

Recession is over, sell the news!!!!

by e1even1
on Fri, 08/14/2009 - 10:29
#36762

is anyone here not expecting a massive hideous cre bailout? i think that could account for some of the reit euphoria.

by Anonymous
on Fri, 08/14/2009 - 11:02
#36833

I'm not. The people who are holding commercial real estate are not bankers or unionized. There is no benefit to be gained to bailing them out.

by Anonymous
on Fri, 08/14/2009 - 10:46
#36799

"Real" equity in most REITs are below 0. Assets minus liabilities.

They survive on cash flow from poor tenants stuck with recourse rent.

It will revert to reality at some point.

by inflationary (not verified)
on Fri, 08/14/2009 - 13:29
#36805

It's unbelivable what we let these criminals get away w/... as the next reply says.. (Blackstone)

recommended: good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions

by Anonymous
on Fri, 08/14/2009 - 11:01
#36831

It was GS and Mother Merrill who pumped this sector. Now they're worried about valuations? Too funny for words.

by Ducky
on Fri, 08/14/2009 - 11:32
#36890

Congress just does not understand they there are on the shamwow end of Glengary Glen Ross.

Can't wait to see how many $100M days GS has on the short side this quarter

by Anonymous
on Fri, 08/14/2009 - 11:35
#36894

So long as the consumer is deleveraging, saving in "lazy" portfolios of bonds, cash, MM's and CDs, batting a cautious eye to cost, and losing their jobs, the RE market, in general, will suck. That's the cost of a consumer nation where 70% of GDP is consumer spending.

Once the Fed stops pumping trillions into the market and buying up treasury securities, credit markets will likely stop again because the banks don't trust the people they preyed off of to be suckers anymore, partially because they learned a lesson, at least the semi-smart ones, and / or they lost their jobs and income. The Fed has become the risk-taker in this market, and people have been bullish on a Fed-backed liquidity wet dream. They're quickly coming to the end of their ropes though, and one wonders when in the next months that will come to an end.

by Milton
on Fri, 08/14/2009 - 11:46
#36916

So, GS is already short the REITs and their Bonds?

Pump and dump in reverse. Yawn...

by Gilgamesh
on Fri, 08/14/2009 - 12:10
#36951

GS buying up OLP today, along with FCH and GBE.

by Anonymous
on Fri, 08/14/2009 - 12:54
#37012

Burning buildings will solve over-supply problem.

Via Bloomberg;

"California firefighters battling blazes that threaten more than 1,250 homes may be hampered by stiff winds and temperatures close to 100 degrees."

http://bloomberg.com/apps/news?pid=20601087&sid=a0doB2LWPDow

by Gilgamesh
on Fri, 08/14/2009 - 13:12
#37044

People can't even torch their NPL property correctly anymore:

http://www.breitbart.com/article.php?id=D9A28OEO4&show_article=1

by tahoebumsmith
on Fri, 08/14/2009 - 16:11
#37353

While the worst of the current US recession appears to have passed, we caution that CRE trends are just starting to soften and will remain weak into 2011. Ok girls I said it now lets get back to the pep ralley. Goldman boys, they're the best, now get back out and steal the rest ...........

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