Showing posts with label REIT. Show all posts
Showing posts with label REIT. Show all posts

Thursday, May 17, 2007

Behind the REITs Slide

Behind the REITs SlideSocialTwist Tell-a-Friend
Fil Zucchi

As the drumbeat of falling REIT stock prices picks up steam, here is a look at the Commercial Mortgage Backed Securities' (CMBS) spreads as calculated by Morgan Stanley. The first shows AAA rated credit, the second BBB. Without getting into the underlying quality of properties for specific REITs, purely from a capital structure point of view REITs' stock prices probably correlate better to the BBBs than the AAAs credit.

I do not believe there are any "bombs" waiting to go off in REIT land. The elephant in the room however may be the large pension/insurance groups which have dumped billions and billions in private and public REIT's as a failsafe source of double digit returns. Those kind of returns are equal part greed and need, the latter as an effort to balance their returns to their long term liabilities. If these guys don't get their double digit returns on a consistent basis, they're gonna have "issues". It stands to reason that they may have a short fuse if things start moving against them, as any drawdowns would totally screw up their models. We also know that real estate is not exactly the most liquid of asset when "katie starts looking for the door".

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