"Our Children and Grandchildren are not merely statistics towards which we can be indifferent" JFK

Wednesday, September 22, 2010

Commercial Real Estate Prices Drop yet REIT's continue to launch

I don't care about fundamentals...just buy REITS

The Wall Street Journal

Commercial real-estate prices dropped in July, with the Moody's/REAL All Property Type Aggregate Index decreasing 3.1%. It was the second consecutive month in which the index showed a decline of more than 3%. The index has now fallen to a level that is only 0.9% above the recession low in October 2009. The index has declined 7.3% in the past year and has dropped 35.9% in the past two years. The CPPI is currently 43.2% below the peak that occurred in October 2007. In the quarter ended in July, retail property showed the greatest decline, with a drop of 10.9%. Apartment buildings, on the other hand, showed a 4% increase in prices, according to the index.

The fact that commercial real estate prices index has declined 7.3% during the past year appears to be the catalyst for a meteoric rise of REITS. Year to date, Simon Property Group (SPG) is up 21%, Public Storage (PSA) is up 27% while Boston Properties (BXP) has launched 31%.

15 trading days into September, SPG is up just over 6% while BXP has gained 8% and PSA is up 6%. While the REIT's continue their bottle rocket launch in September, Commercial Mortgage Backed Securities (CMBS) continue their delinquency stumble:

The delinquency rate on CMBS loans reached 8.48%, a 23 basis point increase from July. There were $3.1 billion in new delinquencies, driven mostly by five loans recent defaults of loans worth more than $100 million.

Another credit-rating agency Moody's reported the CMBS delinquency rate increased 21 bps to 8.1% in August.

Fundamentals are so old school. The index has now fallen to a level that is only 0.9% above the recession low in October 2009 and while the index is scraping along the bottom, SPG has launched 34% during the past 52 weeks and PSA has risen 35%. Priced for perfection...

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