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Strategies & Market Trends : The Contrarian's Corner

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To: deeno who wrote (80)	9/22/1998 10:51:00 AM
From: Elroy Jetson	Read Replies (1) of 113

I spent 10 years as a real estate development consultant, including time at commercial firms like Cushman & Wakefield. The Street is right about the commercial market indicating a recession. While REIT yields are increasing as the stock price and the appraised property values decline, these yields depend upon rents which can decline quickly with the economy. Two identical buildings can be worth dramatically different amounts depending on their rent roll. A building with blue chip tenants on long term leases might sell for 3 times the price of the same building with tenants who might go out of business, or with leases which expire soon. This value is easy to calculate with specialized programs like Argus or Pro-ject, but the REIT does not provide you the information needed to do this analysis. Developers keep their choice properties and sell their other stuff to REITS. The only time to buy REITS is near the end of a recession, and that is not now.

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