Decline in REIT Prices Is Likely to Continue

by: Sam Subramanian

Earlier this week, I had expressed my concerns on the near–term outlook for Real Estate Investment Trusts and REIT ETFs. Last week, CreXus Investment’s (NYSE:CXS) initial public offering received a cool reception. This week Apollo Commercial Real Estate Finance (NYSE:ARI) and Colony Financial (CLNY) halved the size of their IPOs on lack of investor demand. This reduction in size did not however prevent ARI and CLNY shares from receiving a haircut today, their first day of trading.

The REITS are trying to take advantage of increased investor risk appetite. The supply is however hitting the market at a time when concerns of falling commercial property values, declining rents, and rising defaults are returning to the forefront and weighing on real estate investment trusts.

The current pullback in REIT ETFs like iShares Dow Jones US Real Estate (NYSEARCA:IYR), Vanguard REIT Index ETF (NYSEARCA:VNQ) or iShares Cohen & Steers Realty Majors (NYSEARCA:ICF).is likely to run its course until prices visit their 50-day moving average at a minimum.

Aggressive traders can look to profit from this continuing pullback by taking positions in ProShares UltraShort Real Estate (NYSEARCA:SRS) or Direxion Daily Real Estate Bear 3x Shares (NYSEARCA:DRV).

Disclosure: I do not have long or short positions in any of the securities discussed.