Los Angeles Luxury Rental Pains Accelerate As REIT BRE Properties Continues Feeling Goldman Anger (And Underperforming)
If multi-apartment REIT BRE Properties is any indication of the housing "recovery" that is currently occurring on the West Coast, then look for several more decades of "exceptional" interest rates (when the exception is the norm, will any future rate hike be announced as exceptional as well... some time in 2020?). BRE, which together with REIT Duke Realty, is one of the few REITs that seem to have pissed Goldman off at some point, likely refusing corporate finance advisory services to the hedge fund with just one trading day loss in Q3, and as such merit a Sell recommendation, announced earnings today which demonstrate ongoing pain in such key housing markets as Los Angeles and Seattle. As Goldman points out, "Los Angeles and Seattle remained the weakest markets with rental rate declines of -11.5% and -8.5%, respectively."
BRE, which owns 90 properties with over 23,000 apartment units mostly in the bubble cesspool of California, Phoenix and Seattle, is known for catering to slightly higher than mid-level tenants, with such properties as Tiffany Court along the La Brea tar pits, and 5600 Wilshire. If the pain at these presumably better than average properties is so acute, one can only wonder how rentals are faring in such middle-class enclaves as Brentwood (south of Sunset), Westwood, never mind getting closer to the apocalypse that is downtown LA.
And if one assumes that BRE is a good proxy for an extended universe of multi-apartment REITs, investors should heed Goldman's warning for shares of BRE (which by implication is likely quite applicable to most if not all other comparable REITs).
We reiterate our Sell rating on BRE Properties, based on our view that rising job losses across the company’s core markets in California and Seattle should drive lower NOI growth and pose a risk to expected development yields and lease-up. We modestly revise our 2009 estimates to $2.48 from $2.47 based on 1c/shr gain included in 3Q result. Our 2010/11 estimates remains unchanged.
As for hotel REITs, our advice is to enjoy the Underbar at the Union Square W soon. It will likely not be there long (not that the too are directly linked).