Is It Time To Start Investing in REITs?
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If you are trying to see where the best place to put your money in the real estate market you may be surprised. Real Estate Investment Trusts (REITs) have taken a beating in the market recently but now may be the time to buy them up.
Shares of a REIT typically sell for a modest premium over the firm’s net asset value — the estimated value of the real estate in the REIT’s portfolio — said Mike Kirby, director of research at Green Street Advisors, a Newport Beach-based investment firm that specializes in the REIT industry.
Recently, REITs on average have been selling for about 20% less than their net asset values, he said. That would suggest investors believe commercial real estate prices are likely to fall sharply. Because such a decline is “already baked into the cake,” the shares are attractively priced, Kirby said. “It may feel like a bad time, but there are some important valuation metrics that say differently,” he added. via Los Angeles Times.
Investing in markets when they are down and they look their worst is one of the great ways to make a fortune. Conventional wisdom typically lags the actual market place so when the media and pundits start screaming we have hit bottom, the bottom has typically passed and the opportunities are out there. So take a look at REITs and find the deals. They are out their now.
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Comment by Bryan Stanton on 24 November 2007:
Great advice, I agree.
Comment by The Div Guy on 24 November 2007:
I have started to purchase shares of CLP and HRP. I may be a little early but I don’t mind collecting the dividends while I wait for a turnaround.
Comment by Robert Coté on 25 November 2007:
“Recently, REITs on average have been selling for about 20% less than their net asset values.”
Aye there’s the rub. Anyone heard anything recently about any…. oh I don’t know… markdowns in the financial markets as companies are forced to revalue their real estate backed portfolios? If so and baked into the cake for REIT valuations then the speaker in the article agrees that they are still overvalued relative to underlying asset worth.
Comment by Lisa Galley on 25 November 2007:
I’m in with Robert Cote’s point. The REIT securities market is pretty efficient - and the big gap between share price and net asset values does not immediately mean to go buy REIT stocks right now. On the commercial RE side, I’m seeing lots of deals getting sidelined right now as sellers haven’t accepted the lower repricing of their assets (due to rising cap rates) or the new more expensive financing terms that buyers are getting, both of which force lower asset pricing. It will take time for the new pricing/yield expectations to work through the system. And the 20% gap doesn’t clearly indicate whether we are at the beginning, middle or end of that process.
Comment by john on 25 November 2007:
I agree. Does anyone have some more advice for some REITs specifically or any real estate related stocks that have now hit bottom that are worthing buying? KBH for instance is at a low price right now–or is it too early and bottom is still a ways away. I’ll take a look at the ones suggested. Thanks.
Comment by Robert Coté on 26 November 2007:
Not investment advice, yadda, yadda:
It doesn’t take a rocket scientist to know with absolute certainty that some homebuilders are going to go bankrupt. Which ones? Does it matter? Here reach into this bag of marbles; there are 15 white marbles, 2 gold marbles and 3 black marbles. What’s too worry? The white marbles will eventually someday be worth one marble apiece again. That cuts down on your odds of losing everything should you grab a black marble in search of the gold marble. Right?
Toll reported negative net sales in one region for the first two weeks of last month. Anecdotal and too small a data cachement but you know what they say about cockroaches.
Short answer; these days it isn’t investing so if you are an investor and not just a gambler who thinks they are an investor this isn’t the market.
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[…] looks like the combination of a weak dollar and softening commercial market are creating opportunities for overseas investors to come in and buy […]
Comment by Robert Coté on 26 November 2007:
Yep. Ask the Japanese how their investment in the Rockefeller Center worked out.
Comment by Tom Price on 28 November 2007:
Anatole Pevnev in his latest REITtalk podcast (episode 126) makes the point that the relative inactivity of highly leveraged private equity buyers is going to be advantageous to REITs, most of whom have strong balance sheets. Watch out for a spike in M&A activity!