What's Wrong With Capital Appreciation in Core Real Estate? [View article]
Yes, ssg13565, I've plotted the gains and losses over time, and what's shocking is that private real estate investments (meaning those not made through publicly traded REITs) have never provided very much capital appreciation except in the few years of the bubble. Even at the highest peak of the bubble, capital appreciation was unbelievably low: as of 2008Q2 (the high point), for example, core funds showed capital appreciation averaging just 0.80% per year over the previous 20 years. For publicly traded REITs, though, the capital appreciation averaged 5.39% per year.
That means it's not just a matter of the endpoints. The truth is, capital appreciation in real estate has taken place--but the managers of private real estate investment funds have missed it completely.
Are Correlations Too High to Justify REIT Investments? [View article]
You're right, Malach--and, in my opinion, fundamentals are exactly why REIT stocks have increased so strongly. REITs started their downturn in February 2007, not because fundamentals were already bad, but because investors expected them to get bad. Then, in October 2008, something else happened: the liquidity crisis, which caused investors to fear that REITs might not be able to repay their mortgage loans at maturity. That crisis ended in March 2009, yet REITs are not yet back to where they were before it started. Meanwhile, investors are looking forward to strong earnings growth for REITs--partly from improved operating income when fundamentals improve, and partly from the opportunity to buy good properties at good prices from distressed sellers. That disconnect between REITs and the private side (meaning not traded on any exchange) of the real estate market is likely to persist, to the advantage of REIT investors.
Office Rents Stabilize but That Doesn't Mean the Pain Is Over [View article]
Good article, Tom--and I agree with Tony that the worst is still ahead of us even if operating fundamentals are improving. Very few properties have been transacting, and that's because a huge amount of real estate was bought using huge amounts of debt at the top of the market by investment managers who were under pressure to put committed capital to work. The equity put into those investment managers is gone--completely--but they're pretending it's not so they can continue to raise capital and charge fees. Their bluff won't be called until their debts mature, which for most of them will be around 2012. Meanwhile, the average property value will continue to decline, because the wave of distressed sales will continue to overwhelm the smaller number of high-quality non-distressed sales. So the debts will mature into the bottom of the market, even if operating fundamentals have improved substantially by then. The worst has already happened, but it won't become obvious until later.
What's Wrong With Capital Appreciation in Core Real Estate? [View article]
That means it's not just a matter of the endpoints. The truth is, capital appreciation in real estate has taken place--but the managers of private real estate investment funds have missed it completely.
Are Correlations Too High to Justify REIT Investments? [View article]
That disconnect between REITs and the private side (meaning not traded on any exchange) of the real estate market is likely to persist, to the advantage of REIT investors.
Office Rents Stabilize but That Doesn't Mean the Pain Is Over [View article]
Meanwhile, the average property value will continue to decline, because the wave of distressed sales will continue to overwhelm the smaller number of high-quality non-distressed sales. So the debts will mature into the bottom of the market, even if operating fundamentals have improved substantially by then.
The worst has already happened, but it won't become obvious until later.