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I am still developing my REIT thesis
Thus, the first of the two reports for subscribers will probably be
pushed off until next week. We had a problem sourcing market rents for
some of the properties in the REIT's portfolios and I prefer to use
actual numbers in lieu of assumptions so it took a little longer to
populate the models as well.
I will discuss the rejects from
the short list today, though. One aspect of crystallizing the thesis is
dealing with the obvious manipulation that is occurring in the REIT
space (see Here's a Big Company Bailout by the Taxpayer That Even the Taxpayer's Missed!)
as well as government complicity in the purposeful opacity of the
values of the mortgage assets (see the FDIC "Prudent Commercial Real
Estate Loan Workouts" guidance issued Oct 30th, as reported by the WSJ:
Banks Hasten to Adopt New Loan Rules and the new FDIC guidance
that states performing loans "made to creditworthy borrowers" will not
require write downs "solely because the value of the underlying
collateral declined").
There is also the issue (as the previous
link illustrates) of the sell side potentially pumping this
sector against what I see as fundamental fact, which very well may succeed in further separating price from
value, and fiction from fact. See Is Goldman Preparing To Upgrade The REIT Sector?
It is quite possible that I may issue a direct challenge of research
and opinion, comparing my work and thesis directly against the titans
of Wall Street, eg. the (overly) esteemed Goldman Sachs. I will need
very high volume (new) media outlets to counter their reach, but I
believe I may be able to accomplish that. Stay tuned, this may very
well get interesting!
The delay in the thesis development
stems from my trying to surmise if the actual state (as in the explicit
overvaluation, portrayed in a property by property fashion, rolled up
to an entity level number) of the collateral properties in question
were actually released into the public domain, would it cause an
"everyman for themselves" dash for liquidation. The European bank that
asked me all of those questions in 2008 about my GGP work - see "GGP and the type of investigative analysis you will not get from your brokerage house"- (which I never charged them for), should be VERY greatful they followed my heed and chose not to refinance those loans! You know who you are...
After
all, prudent participants should realize that we are not going to see
2006-7 pricing anytime soon and kicking the can down the street in
anticipation of such is bound to end worse than where said
banks/lenders happen to stand right now. That is, unless they are
trying to build up other revenue streams in anticipation of creating a
cushion for the inevitable CRE hit. The problem with that thesis is the
longer you wait, the bigger the CRE hit will be. With that being the
case, those who snatch their crumbs off of the table first, get more
crumbs to snatch. It is possible, if given the correct selfish
incentive, capitalism may again rear its eclectic head.
- advertisements -
Sell overpriced REITs. SLG SPG VNO BXP many many more.
Read Mort Zuckerman's comments on latest conference call.
Additionally there is the new competition from housing speculators who are renting out properties they can not sell.
Just look at SRS and DRV, if that isnt blatant manipulation, i dont know what is....
loki. "go, look, see, touch, Investigate!"
your statement is so true. There are and have been to many punters out there that rely solely on "advisors". (even using the word gives me jitters).
Reggie, I love your thought process. thanks for your time.
Reggie thank you for all your work. Dont know if I can be of much help, but I happen to own a retail store and lease from a large REIT in distress. Would be more than happy to help you in any way that I can. If you would like more information please let me know what would be the best way to communicate with you. Thanks again for everything you and ZH do.
Reach out to me here. I would like to know who it is and what your experiences and observationgs have been.
FYI - it looks like MAC is purposely not working/slowing work on Santa Monica Place. Appears to be little chance it opens Aug 2010.
I am actually refreshing my MAC analysis now. Notice the recent spike in their share price. Management has aggressive tackled its liquidity issues, the problem is (like many of its brethren) more of a solvency issue though.
Yes, I've noticed MAC strength all day. I wonder what the Citi analyst is gonna do when it hits his price target of $34?
Like I said, I plan on taking all of these guys to task. The macro argument should be fleshed out sometime today, and I will post a granular analysis next week. MAC will be part and parcel to the package as well.
I do appreciate your work... You are doing what Sam Zell *used to do* when he was smart: go, look, see, touch, Investigate! before investing. I think the "grave dancer" finally fell in (ie Tribune, Capital Trust.)
Thanks.
I absolutely agree... I've given up my buy/hold portfolio... none of it makes any sense at all... none of it.
The question no one can answer, it seems, is when will it ever make sense again? If ever?
I don't want stocks, pretty sure gold/silver may rise but can't see buying those, bonds - forget it, cash? - doing nothing and going nowhere...
I'm officially lost.
Goldman is pumping REIT's for a dump as we speak.
Thank you, Reggie! The signs of a CRE pullback are everywhere but you put them together with the financial analysis.
If a very bright person (such as yourself) can do this analysis with (I assume) limited (at least in comparison to a major brokerage house) resources, why cannot any of the "titans of finace" perform this service for their clients?
Oh! They don't have "clients" (except for a select group who are given inside info), they have "victims" that they prey upon.
Your're welcome! Your comments highlight a very interesting inflection point. I believe that the blogosphere has become accepted as a viable source of information, content and knowledege dissemination. Enough that it has significantly challenged the established media, most of whom have yet figured out a way to use the blogoshpere to their advantage and thus are suffereing a significante loss of mind and marketshare as the blogoshpere takes off.
What is of even more interest is the fact that a substantial amount of insitutional players on both the buy and the sell side are now relying on a bevy of both established and relatively new blogs for macro analysis, fundamental and forensic viewpoints. This is a direct threat to establishment, the status quo of Wall Street. The Goldman research desk, the Standard and Poor's and Moody's of the world are faced with competing with a substantially lower cost structure, an absence of the conflicted interests that disable them from offering truly valid research, and in many cases (but definitely not all cases - no disrespect intended), simply a superior and more diverse talent set.
We shall see what comes of it. Stay tuned to this real time, socio-economic experiment in creative destruction that will be the next REIT analysis and challenge to the sell side establishment. If investors, banks, retail and institutional clients show enough interest, I will produce more of the same.
why? why? then are the ETFs that short real estate getting creamed?? There doesn't seem to be an iota of sense to it??!?!?
Isn't it the same as the Stock Market? Pump on no volume to make REIT look like a good investment, and kill the shorts in the meantime.
Well, personally, I don't believe in ETFs. They are a trader's tool and I am not a trader, at least not one of the better ones.
As for getting creamed, the entire market has been moving against the fundamentals for some time now. What makes real estate a little different from many of the more exotic esoterica that has been over-valued is that real estate can easily be seen, touched, and measured.
Tell me, how much of a premium over construction costs does this building demand, sitting around 5 other work in process construction projects, about a dozen or so completed buildings with vacancy rates ranging from 255 to 92%, amid 10.2% and rising unemployment directly after the US's worst credit bust ever:
It is very difficult to hide extreme real property distress! These are not CDO cubed...
think they used a plumber's mate to design that building in your picture, or was it a bricky?
Because declining CRE values do not automatically mean declining REIT prices as the quick common assumption has been on this blog. It is true that the NAV of the currently owned properties will dip but the healthy REITs that make it (and these are the majority weight in the indexes that the likes of SRS bet against) will be able to pick up choice locations at bargain prices. Check out how much money is being poured by the buy side into distressed debt and property silo funds, good REITs will do an even better job. If you take a long term perspective, the near term mark down on the current portfolio maybe a fraction of the investment opportunity going forward for a good acquisitive operator.
Similar thesis for some of the good regional bank operators like US Bancorp. Their current portfolio is not doing too well but they won't go bust and while they are muddling through with their existing book they are picking up deals like Downey and FBOP at bargain prices that will work really well in the long run
You assume there will be a recovery (and I don't mean the jobloss recovery we have now). Things are getting worse and worse. Can't you see the the government/Fed is propping everything up including housing, the bond market and indirectly the stock market? This rally is just a massive short squeeze driven by the carry trade. Banks are literally borrowing huge amounts of money and using it to buy their own stocks and client stocks. As long as it keeps going up then they (JPM, GS etc.) can keep the market under control. Just a few weeks ago they came within a few points of losing it.
I don't know when it will break but I'm betting that something big will happen between now and mid - January. If you don't have the balls to stay in then get out. Otherwise manage your positions and try to minimize your losses. When this sucker breaks it will be big. Here's a clip from good ol Howard Davidowitz:
http://www.youtube.com/watch?v=_o8kqM4zYo8
Being a mere 9 years into the winter K-Wave I would think it a little premature to be pouring anything into even distressed properties, even OPM. Three years from now these properties will be 1/2 the price. Remember what Sir John Templeton said about property? 10 cents on the dollar. only question is ... is it 10 cents real money or one dollar nominale.
Your comment is another reason why I don't like ETFs. I don't have enough control over the targets that I identify. One thing though. Many investors have been burned trying to time the market. They load up with cash and plunge in when they feel the market is cheap, not realizing that things that are very cheap can consequently get a whole lot cheaper, and even quite a bit cheaper a little after that. If one is buying a property based on an unbelievable yield that one is comfortable will hold up in the medium term, than by all means I would say go for it. It appears some buy side guys are literally trying to trade, because they see prices significantly cheaper now than they were two years ago. You will probably see that relationship exist and possibly even expand over the next 10 years or so, so I wouldn't base any purchase decisions on such a metric.
You wrote: "but the healthy REITs that make it...will be able to pick up choice locations at bargain prices. Check out how much money is being poured by the buy side into distressed debt and property silo funds, good REITs will do an even better job."
This is the same argument that supported the public homebuilders in January of 2008. It's simply incorrect. The Reits will suffer declining rents and declining occupancy. Additionally, the extend and pretend motto at regional banks hurts the Reits even worse, because smaller owners will be able to keep their properties and lease them at lower rates.
Reits will not pick up choice locations, and all this garbage about "quality portfolios" is a bunch of crap anyway. Take a look at the shite FRT owns. Yet analysts are constantly talking about the quality of their book. There is no inherent value to commercial real estate other than how much someone will pay to rent it from you. As vacancy increases, rent declines, the value of the property declines. Same goes with cap rates. As they go up, the value of the property declines.
This is simply a short squeeze orchastrated by ML, BAC, CNS and perhaps GS.
Well said Jonny! This whole rally has been a massive short squeeze financed by the carry trade. If it ever drops even 10% or the dollar starts going up in a meaningful way it's game over!
Take it from Howard:
http://www.youtube.com/watch?v=_o8kqM4zYo8
Long term the gubbmint is going to be broke and the equity behind these great commercial real estate deals done between 2005-2007 will be wiped clean. If you don't have the balls to stick to your short positions then throw in the towel. Whey they have cleared 90% of the shorts out they will drop this market like a ton of bricks!