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In 2009, commercial real estate was widely touted as "the next big shoe to drop." Buildings were empty, real estate services companies were losing millions daily, unemployment was through the roof and no turnaround was in sight. Two years later nothing has changed unless you consider upticks in public sector employment a boon for commercial real estate.

Thanks to an impressive stock market run, leading lessors of commercial real estate now trade well above 2008 highs. Still, from dwindling Detroit, to my debt ridden hometown of San Diego, buildings are emptier than ever.

That's not to say firms like CB Richard Ellis (NYSE:CBG) haven't made adjustments to operate more efficiently under challenging circumstances. Despite revenue below 2008 levels, CBG finished 2010 with a strong quarter and posted positive net income. Even so, accounting tricks and downsizing only appeal to investors for so long.

At 45 times 2010 earnings and loaded with debt, it's not surprising how quickly insiders have been unloading shares. Several recent open market sales have exceeded 300,000 shares each.

CBG operates internationally, but mostly in the USA. Jones Lang LaSalle (NYSE:JLL) offers real estate services worldwide with relatively more focus on emerging markets. Both have risky exposure to the turmoil stricken MENA region. With a lower P/E ratio, less debt and a more diverse portfolio JLL is less appealing to me as a short candidate.

Real estate prices in China are a popular target of bubble seekers. Publicly traded Chinese companies that derive income from commercial real estate services include E-House (NYSE:EJ) and Syswin (NYSE:SYSW).

A major component to which I attribute lofty valuations on CBG and JLL is disinterest from individual investors. The sector is widely recognized as unattractive and has likely enticed more short-selling than buying. With mutual fund money flowing steadily into the market for the last year and individual investor interest in commercial real estate extremely low, a perpetual cycle of mutual fund buying squeezing a few shorts has driven the stocks to prices even the most optimistic would struggle to justify. Furthermore, volume in CBG and JLL has remained near five year lows while the stocks have made recent gains.

With markets finally showing signs of resistance and some leading stocks selling off, complacent movers with weak fundamentals risk major downside in even a brief broad sell-off.

Disclosure: I am short CBG.

Source: Ripe for Shorting: Real Estate Services Firms