Institutional Investors May Have To Shed Commercial RE [Housing Tracker]

Commercial Real Estate and Real Estate Investment Trusts [REITs]

REIT Trading Volume Jumps As Goldman Urges Caution. “Options traders pounced on several REITs after Goldman Sachs said "the worst is yet to come" for those companies. Schaeffer's Investment Research: Trading in Simon Property Group Inc. (SPG) jumped to twice the normal daily volume as investors pursued "credit spreads" that make money if the company's stock trades at or below recent levels... Options traders also circled ProLogis, a REIT that leases industrial space to manufacturers, retailers and transportation companies... In General Growth Properties Inc. (GGP), a shoppping-mall operator, the options market is pricing in a 40% higher risk over the next 30 days.” (Wall St. Journal, June 12th)

Zuckerman Takes Manhattan. “Investors are wondering whether Mortimer Zuckerman's Boston Properties Inc. (BXP) is making a risky bet on Manhattan by snapping up Harry Macklowe's prized General Motors building and three other properties for about $1.47 billion plus $2.47B in debt… Investors [who] cheered that BXP sold more than it bought in 2006 and 2007, when the market was near its peak [were] surprised many to see BXP jump back in so quickly and agree to pay the highest price ever for a single office tower, $2.8B… for the GM building… New York employers continue to shed thousands of financial jobs, [and] the direction of commercial-real-estate values is far from clear.” (Wall St. Journal, June 11th)

An Italian Snags the Flatiron. “A top Italian real estate investor has nabbed a crown piece of NY property, a sale that echoes the Japanese purchase of Rockefeller Center in 1989. Valter Mainetti’s company, the Sorgente Group, has acquired a majority share of Manhattan's historic Flatiron building… As bad as the U.S. housing bust has been, the falloff in sales has been cushioned by foreign buyers in such places as NYC and Florida… Real Estate Alert newsletter: Foreign companies were the buyers in four of the top 13 U.S. commercial real estate deals in 2007.” (Time.com, June 10th)

Institutions Struggle with Denominator Effect. “Institutional investors [may] need to sell off a portion of their commercial real estate portfolios in order to maintain pre-set target investment allocation levels. “The Denominator Effect”: As the value of different asset classes — stocks and bonds for example — falls, the value of allocations to other assets, including commercial real estate, rises above allocation targets, triggering needed adjustments, i.e. sales… Some pension fund advisors have begun telling clients to cut back on future funding to commercial real estate. Recently the City and County of San Francisco Employees’ Retirement System reduced its target allocation to real estate by 73%, from $750 million to only $200M in its next fiscal year beginning in July.” (National RE Investor, June 9th)

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Comments

[BerkeleyBob:]

I am long PLD and did well in the acquired subsidiary, Catellus. Do you refer to short sellers? PLD does not seem to need cash, is involved in rest of world transactions. Any reason I should be nervous about continuing to hold for the long term?

2008 Jun 13 02:14 PM