Joel,
Yes, I miss Edwarda myself. I was out on "her" thread last night. The anniversary of her passing is coming up on the 19th. In some ways it seems so long ago, and in other ways, like it was yesterday. I guess that there's some things in life you never quite get over...
REITs aren't as bad as you think. They got a bad rap back in the bubble years when they were returning "only" 5% to 10% dividend yields, while some growth stocks were returning 10% a day on average. Now that growth isn't growing and value is valueless, returns of 5% to 10% look alright. It's recognizing and adjusting for risk(s) that has me hung up.
I think that some residential real estate is in a bubble. I don't think that statement holds true across the nation though. Just geographic pockets of bubbles, here and there. Mostly the bigger cities of the east and west coast, and a few larger metropolitan areas betwixt and between.
The biggest problem (in some areas) with office space and commercial space is an overabundance of available properties. When K-Mart went under, they left behind a lot of large "boxes" that remain vacant. Office space was overbuilt in some areas, and the demise of the dot coms left many offices empty in California. But again, we're talking here and there problems, certainly not true everywhere.
So, in picking REITs, it becomes very important to know the underlying assets, and where they are located. Location, location, location...
I'm pretty down on most residential REITs, because of the (so far) short term trend towards home ownership and away from residential apartments. However, even in residential there are some potential bright spots, such as senior citizen housing, a large portion of which is (or will be) rentals, and some portion thereof which will be in somebody's REIT.
Right now, I'm concentrating mostly on commercial spaces and offices. I'm trying to avoid any exposure to California if at all possible. Between earthquakes and energy costs, and bubble-sized valuations, I'm very leery of any prospect for a rosy REIT future in California. Seattle is another area that looks pretty iffy to me. On the other hand, prospects look pretty attractive for the mid-west and the south, with the east coast being somewhat spotty depending upon where you look.
The threat of additional terrorism is another risk, especially so for locations that one might consider as a "prime" target.
The biggest problem I'm having with the REITs is simply comparing apples to apples. As I break these things down into their various components, I'm finding very few REITs that are straight out one thing or another. Many of them seem to stray from one strategy to another, or have exposure to multiple risks because of investing in different areas.
I'll continue looking. I've got the list narrowed down to about 100 or so REITs that are worth a deeper look. Maybe the better strategy is to select a basket of REITs across a variety of asset classes rather than trying to find the best 2 or 3 at any given time.
Thanks for your two cents worth.
KJC |
