Will suffering commercial real estate investors want an alternative safe haven?
*Barron's, by Andrew Bary, May 4, 2009:
"First, the housing market tanked. Now, a shakeout has roiled the
commercial-property market. Separating the winners from the losers.
AMERICANS IN THE PAST TWO YEARS have been closely watching residential
real estate, as TV commentators breathlessly relate each downward tick
in home prices and upward move in foreclosures. But all the while,
another important part of the real-estate market has been quietly
cratering, all but ignored by the general press. Since peaking in early
2007, the value of the nation's commercial property has fallen an
estimated 30% to 40%.
You can get a good idea of the pain being suffered by looking at an
index of real-estate investment trusts, the publicly traded entities
that investors use to play the commercial real-estate sector. The MSCI
REIT Index fell 77% from a high of 1233 in February 2007 to the low of
287 hit in March. Since then, it has rebounded 45%, to 420, as
investors seek opportunities and the economy seems to be improving.
Table: Not A Pretty Picture
But the commercial-property sector remains fraught with peril. Some
REITs will be strong enough to snap up buildings at bargain prices,
while other REITs may go bust or need to raise gobs of new equity to
bolster their debt-heavy balance sheets. The commercial real-estate
problem has become a focus of federal regulators in recent weeks as
they stress-tested the 19 largest U.S. banks to see where losses could
pop up if the economy, rather than recovering, worsens.
Why has the value of REITs tumbled an average of 65%, while the value
of their properties has slid more like 35%? REITs tend to rely on
borrowed money. That boosted profits in the good times, from 2002 to
2007, but has magnified problems ever since."
*This information is solely a highlight of the opinion of a third-party publication and is incomplete. Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.
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