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Is it Time to Buy REITs?

Posted by: Chris Palmeri on October 14, 2008


After soaring through much of the decade, real estate investment trusts had a disastrous year in 2007 when their downturn presaged the overall credit market collapse. Through Oct. 10 they were still down some 21% in 2008. But with the stock market now showing some life is it time to buy these real estate-related firms?

No, says Michael Kirby, director of research Green St. Advisors. Green St. follows real estate investment trusts exclusively so when Kirby says ‘don’t buy them’ it means something. Overall his buy recommendations have returned 27% annually since 1993. His sell recommendations have appreciated .3%. The average REIT returned 12% on average over that time, according to the National Association of Real Estate Investment Trusts.

Kirby’s beef is that relative to corporate bonds; REITs still don’t look like a good deal. REITs are presently yielding 5.5% versus 7.8% for corporate debt. Moreover, REITs look expensive on a price to earnings basis, trading at 18 times earnings versus 12 times for the S&P 500.

Danger looms, particularly for office REITs, as some $185 billion in mortgage debt will need to get financed in 2010-12. It could trigger massive defaults, similar to what happened in the housing market.

If you really want to buy, Green St. says look at Starwood Hotels (HOT), that’s one of its Westin properties above, warehouse owner DCT (DCT) or Post Properties (PPS), a big owner of apartment complexes in the South. They all look cheap relative to their private market asset values.

Steer clear of REITS trading at high prices relative to their asset values. These include First Industrial (FR), Strategic Hotels (BEE) and Cousin Properties (CUZ), an owner of office buildings.

Reader Comments

peter brown

October 14, 2008 6:56 PM

We are comparing apples and pears here. What dividend yield is the S&P 500 trading on. Also, I thought the usual measure was comparing REIT yields with treasuries? What's Michael Kirby doing here - riding point for all those greedy predators out there trying to pick up CRE for nothing?

Joyce Abraham

October 15, 2008 5:25 AM

How can the cause of the crisis- Falling Housing Prices be solved?? What do you think? I am a member of and we are looking for answers. Any suggestions?

Joyce Abraham

October 15, 2008 6:14 AM

The Fed's rescue plan for the U.S. financial industry doesn't address the root cause of the crisis: falling home prices...So are they wasting the taxpayers money and nationalizing the country's banks?

How can the cause of the crisis- Falling Housing Prices be solved?? What do you think? I am a member of and we are desperate for answers. Any suggestions?


October 16, 2008 3:40 AM

Listen to your real estate agent/broker/seller and BW journalists and buy real estate right now. Nobody ever lost money "investing" in real estate. God made only so much land. Real estate is the road to riches. Buy now, flip it tomorrow while sitting on your hands, and in a few short months you too can make several hundred thousands of dollars while doing absolutely nothing. Working 9 to 5 and creating real wealth in assets is a job for fools. Using other people's money to flip real estate is the sure way to riches for smart people. There is no need in this nation to have manufacturing, mining or construction jobs. If everyone just obey the real estate experts, read BW's column about "investing" in real estate, this nation will be super rich.

Herman Brunson

October 16, 2008 3:36 PM

Really? All Michael Kirby's credibility went out the window when he recommended Starwood as a buy right now. It's still trying to find bottom. Maybe you want to give this one another 8 to 10 months to exit the trough.

Harrison Ranch Real Estate

April 11, 2010 7:33 AM

Now is a great time to invest in Harrison Ranch properties in Parrish Florida. The market has hit bottom and stabilized. We are on the way to recovery and prices are at their lowest in years. is a great resource for finding those great Harrison Ranch investment properties.

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BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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