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commercial REITs, pros & cons?
Old 01-21-2009, 12:17 AM   #1
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commercial REITs, pros & cons?

i am thinking of getting into some commercial REITs with some of my 401k money. what are the pros & cons? what should i look out for? this will be for long term holding with the monthly dividends reinvested back in.
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Old 01-21-2009, 02:40 PM   #2
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With the anticipated crash of commercial RE it might be safer to wait till next year. Many firms may be into BK this year. Rents are dropping and vacancies are rising. Just my opinion as I look at the carnage of my current holdings. The bottom isn't here yet for this sector.
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Old 01-21-2009, 03:47 PM   #3
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Pro: An awful lot of future pain has already been priced into them.

Con: We don't know whether enough future pain has been priced into them yet.
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Old 01-22-2009, 06:30 PM   #4
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The commercial real estate market didn't run up the way the residential market did and many of the REITs had pretty decent balance sheets to start with. Near-term cash flow should continue to be decent because many of these properties are under long-term lease agreements but they'll suffer longer-term as leases expire or tenants go *$# up.

Most of the pain felt since November is due to the absolute collapse of the CMBS market. There is widespread fear that even moderately leveraged properties won't be able to roll their debt. From what I understand the CMBS market is pricing risk at a pretty ridiculous level, so I'm thinking this problem will fix itself eventually. I also understand that the Fed/Treasury is looking at the CMBS market too and may extend one of its alphabet soup programs to help it clear.

It feels to me like the credit markets are starting to loosen up some, and I expect that will continue. I'm somewhat hopeful that the death and destruction priced in to REITs right now will prove too pessimistic. I actually put some money in to Vanguard's REIT index back on Nov 21 (missed the bottom tick by one day, and 10%, as I waited for my buy order to clear ). So I'm a buyer of this market.
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Old 01-22-2009, 07:36 PM   #5
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Originally Posted by knucklehead 61 View Post
i am thinking of getting into some commercial REITs with some of my 401k money. what are the pros & cons? what should i look out for? this will be for long term holding with the monthly dividends reinvested back in.
I don't rally understand what you mean by "commercial REITs". Aren't all REITs commercial?

If you mean net lease and/or mall, and maybe strip center, I would be careful. Sometime these markets will bottom, but maybe not until after your REIT is BK.

I look for some of these vacated Circuit City and Mervyn's and such to be turned into indoor arenas for no-holds-barred gang fights by former martial artists, grapplers and such. Maybe from time to time some lions might be let loose, or some alligators and snakes, though the public might not like it if any of these non-human contestant are hurt.

Ha
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Old 01-22-2009, 08:22 PM   #6
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There's a million flavors of REITs out there, and there might not be anywhere to hide for a while.

We're watching local commercial real estate for small businesses take a huge dive. The businesses are, uhm, "going out of business" after their rents were being jacked up by 2007's euphoria, and now the vacancies are opening up. Our taekwondo dojang is moving to a space that's nearly double our two old dojangs put together yet, including utilities, at the same net cost and with a long-term lease. His current landlord is raising the rent 25% and isn't interested in negotiating.

I fear that public-storage REITs are also headed for trouble as indebted homeowners walk away from their stuff.

Maybe the best that can be done right now is to look for closed-end REITs selling at a healthy discount to NAV.
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Old 01-22-2009, 08:31 PM   #7
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Maybe the best that can be done right now is to look for closed-end REITs selling at a healthy discount to NAV.
Just beware that these are generally run with leverage and therefore very volatile and vulnerable to big losses if we see more downside in this sector. They're tempting, and if we do see another leg down I'm keeping an eye on them, but not now for me.
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Old 01-22-2009, 08:38 PM   #8
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From what I hear on the media, non-traded REITS are apparently very stable and pay a solid dividend in the 6 % range historically. But they have a hefty front end load and don't really appreciate much. Kind of like a bond on steroids with a little equity risk thrown in.
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Old 01-22-2009, 09:18 PM   #9
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From what I hear on the media, non-traded REITS are apparently very stable and pay a solid dividend in the 6 % range historically. But they have a hefty front end load and don't really appreciate much. Kind of like a bond on steroids with a little equity risk thrown in.
perhaps i should have been more specific, but yes, the reits i was refering to are the non-traded type.

i already have a large chunk of money in a DST TIC that pays 7.5% with monthly dividends. (683 apartments in 2 complexes in durham, south carolina) & want more of this type of income.
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