REITBull

Looking for the REIT Bargain

Thanks H.J.

Looking for the REIT Bargain

Thanks for the feedback H.J.

My reason for being more bearish on Residential REITs is that as the price to own comes more in line with renting, these Rez REITs may loose many of their longer term renters as owning becomes more attractive. These renters can be replaced by those who are not in a position to buy, but at lower rents than the exiting tenants. These apartments will also have to compete with single family homes being rented out, adding additional pressure to rental income.

I believe much of the carnage in the residential markets was caused by the high number of residential loans that were securitized. Most commercial mortgages were kept as portfolio loans allowing greater flexibility for modifications and extensions.

I agree that rising vacancy rates will push down the value of CRE. The more important question to me is, which will recover sooner? Rez or Commercial? It is going to take some time to burn through the excess supply of residential real estate (option arms are still resetting and people are still walking away from underwater homes). On the other hand, I am not confident that the consumer will continue to maintain the current savings rate. Many consumers are not very disciplined when it comes to savings over the long term. As they begin to spend money at the malls, this will lift the industrial REIT's, Retail REIT's and eventually the office REIT's as more jobs are added back. Once this happens the jobs picture will look better and people will feel comfortable purchasing homes again (which will reduce supply and improve pricing power for Rez REITs). That's just my take and I don't assume that my opinion is any better than the next guy's.

I still agree with many of your analyses as you are taking a technical approach and you have demonstrated that in all likelihood many REITs may have been oversold. Thanks

Looking for the REIT Bargain

H.J.,

I have become a fan of your articles due to the fact that you seem to do a very in-depth analysis and support your opinions with data. I'm going to take a look at the DEI 10K myself. If you are taking requests, I would love to see an analysis on commercial versus residential real estate from a macro standpoint and why you feel that residential will recover sooner. I'm not trying to challenge your opinions, I just like to question my own (I am more bullish on CRE then Residential).

Thanks