In attempting to figure out the direction of the housing market, one needs to consider strategies of the major real estate investors. This article from CNBC.com News gives some insight into the thinking of a few major REIT fund investors, where they feel the real estate market is headed and when.
By: Jeff Cox, CNBC.com | 02 Jun 2009 | 02:27 PM ET
After taking a beating for the past two years, real estate investment trusts are regaining popularity with investors looking for bargains and a way to capitalize on an industry rebound.
More commonly known by their acronym, REITs are funds that provide investors with a broad range of investment opportunities while delivering substantial tax breaks to the corporations that set up the vehicles.
Wildly popular in the earlier part of the decade during the real estate boom, REITs nosedived in 2006 and 2007 as the market fell correspondingly.
But recent developments over the past several weeks have sharp-eyed investors again examining REITs as a way to profit from a looming rebound in the industry.
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And contrary to the growing trend of investors to eschew the traditional buy-and-hold stocks strategy, REITs are being looked at as long-term plays that will stand up against expected economic trends.
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“It’s not a play I’m looking to go into for a month or two. Over the next several years there will be opportunity in REITs,” says Joe Heider, president of Dawson Wealth Management in Cleveland, which manages more than $400 million in assets.
“The market did oversell, and if you look at the replacement costs, the net asset value of these individual REITs, and roll them up into a portfolio, that is where the opportunity is.”
But it’s been a tough ride getting here.
REITs have fallen precipitously over the past two years. In 2007, the FTSE National Association of Real Estate Investment Trusts All REIT Index fell 17.83 percent, then dropped 37.34 percent in 2007. While the index is down more than 10 percent in 2009 after negative months in January and February, March posted a 4.41 percent gain and April saw a rise of just under 28 percent.
Industry experts trace the rebound in REITs to several factors.
Over just the past several weeks publicly traded REITs have gone to the marketplace and raised more than $10 billion in equity, according to Real Capital Analytics, a New York firm that follows real estate trends. While that can be dilutive to share prices, the ability to raise cash in a market that has struggled for liquidity has been a show of strength from some of the less debt-laded companies.
There also has been an important economic trend that has fed into enthusiasm for REITs: Growing optimism that the economy is improving–so much so that inflation could be the next significant problem. Real estate is generally seen as an effective hedge against inflation as property values increase. [read more…]
During the last three weeks, in the small community of Newport Heights, Newport Beach California, five homes have been placed into escrow. They were all in the asking price range from $1,595,000 to $3,595,000. Is it possible that these buyers are also tracking the play of the major REIT investors?