Goldman Slams Commercial REITs

Summary from report:

"Commercial real estate trends are eroding at a pace indicating that occupancy and rental declines should match the deep recession of the early 1990s. To that end, we ran a “stress test” for the 36 companies under coverage and now expect a 25% decline in earnings in 2009/2010, far below Street growth forecasts. Moreover, we expect most companies to reduce dividends to help address debt rolls of more than $100 bn into 2012."

Punchline: $26 billion of debt comes due in 2009/2010. Even with all REIT dividends converting to 100% stock/0% Cash, this measure would satisfy at best 25% of needed cash to pay down upcoming maturities. In our opinion a massive wave of commercial REIT defaults is expected.

ZH still thinks SRS is a terrific investment vehicle as this industry unwinds, despite the embedded weaknesses of a double negative ETFs (and yes we do hold a position).

Full report here.