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John Thomas graduated with a bachelor’s degree in biochemistry with honors and a minor in mathematics from the University of California at Los Angeles (U.C.L.A.) in 1974. He moved to Tokyo, Japan where he was employed by a medium-sized Japanese securities house. Thomas became fluent in Japanese... More
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  • There are Great Shorts Setting Up in the REITS 0 comments
    Nov 20, 2009 11:16 AM | about stocks: VNQ, RWR, FRI, IYR
    The commercial real estate industry is going to need $500-$700 billion to recapitalize, according to William Mack, CEO of Mack-Cali realty, a major REIT investor. Domestic investors don’t have this amount of cash to allocate to this sector, and US tax policies are preventing foreign capital from filling the void. This means that it is going to take up to a decade for the sector digest the current massive inventory glut. Values are down 25%-75% from the top, with undeveloped land, hotels, and retailers hardest hit. Multifamily residential (apartment buildings) has been the least affected. The government is giving the banks a free pass for now, letting them “amend, extend, and pretend”, and carrying properties on their books at unrealistically high values, until they can write off losses slowly over the next dozen quarters.  Real recovery won’t come until you see healthy job growth, which looks way beyond the horizon. Real estate mogul Sam Zell sees, commercial least rates stabilizing at 30% below 2007 levels, who could be a wildly unrealistic owner talking his own book. Another major player in the sector, Richard Lefrack, president of the Lefrack Organization, thinks as many as 1,000 regional banks could be dragged down by the industry’s troubles. One of the great puzzlements for me is how well the listed REITS have performed, with the iShares Real Estate ETF (NYSEARCA:IYR) up a staggering 130% from the March lows.  Maybe there’s a great short opportunity here next year. Take a look at the Vanguard REIT Vipers (NYSEARCA:VNQ), the SPDR Dow Jones Wilshire REIT (NYSEARCA:RWR), and the First Trust S&P REIT (NYSEARCA:FRI).
    Stocks: VNQ, RWR, FRI, IYR
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