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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: Box-By-The-Riviera™ who wrote (19613)	6/9/2002 10:32:16 PM
From: EL KABONG!!!	Read Replies (2) \| Respond to of 74559

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

To: Box-By-The-Riviera™ who wrote (19613)	6/10/2002 7:54:06 AM
From: rolatzi	Read Replies (1) \| Respond to of 74559

WRT real estate bubble, the last bust we had in the US was in 1990. I'm not sure how informative that bust is with respect to the current situation but I will review what I remember. The situation then was very different, in that the bust was caused by a combination of a recession, a change in the tax laws and the S&L crisis. The structure of the income tax laws up until 1989 allowed for passive losses from real estate losses which caused an overbuilding of new real estate which was financed by the S&L's. Tax reform made this strategy unprofitable when people were no longer able to deduct passive real estate losses against other income especially when both rents and occupancies declined. Many properties were then suddenly worth a lot less than before When people and businesses defaulted on their loans the lending institutions went belly up and the Federal Government took over the lending institutions. They made good on the instutions' liabilities and required fire sales on the properties. Commercial properties were so depressed in the early nineties, that those living the the Boston area at that time may remember after Wang went broke their two office towers (15-20 story buildings) were sold for $500K dollars (was it really that cheap?). Residential real estate declined probably up to 20% while vacation properties may have gone down by up to 50% (I don't really remember the numbers) in New Hampshire and less so on Cape Cod. In any case it took several years of flat performance before the price of real estate began to rise again. I can't foresee how the current bubble will unfold but it seems like there is a lot of overbuilding of commercial and industrial real estate. I know that office rents have declined a lot but that the remaining over priced sector seems to be in residential. It's not clear which sector of real estate is the most overpriced and which will subsequently have the best recovery. I can't predict how long or how deep a decline we will have or where the defaults will occur. It seems like at some point there will be defaults which will need to be unwound to keep the system solvent and that is when the bargains will really happen. Ro