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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Dale Baker who wrote (33731)	3/7/2009 2:46:39 PM
From: Spekulatius	Respond to of 78774

re REITS What is the threat to REITs with no major maturities for a couple of years? 1) Tenants vacating existing leases or at least renegotiating lower leases. 2) Falling interest rate coverage triggering covenants on existing unsecured loans or credit lines 3) Development projects (Partner defaults, off balance sheet liabilities) Most REITs will get wiped out when NAV of CRE fall by 50% from peak values. This is not inconveivable since the cap rates were at record low (6% in Y2007). Way back then in the 90's Cap REITs of 10% were quite common. Right now the asset values of reasonable financed REITs seem to be be equivalent to Cap rates of 9-10%, if I believe the brokerage reports. Of course in the 90's, interest rates were higher but of course the economy was in much better shape. I think the combination of higher Cap rates and lower rents may be a substantial headwinds for REITs. Also note that rents are a lagging indicator and may continue to fall quite some time even though the economy modestly rebounds. I do agree that the preferred seem to be a much better bet than the common in most cases.