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Real Estate funds recently trending down, thoughts ???

edited February 2012 in Fund Discussions
Howdy All,

We hold FRIRX, which is a fairly conservative real estate fund that includes related bonds, too. The fund is +5% YTD, and nothing to complain about. However, this fund along with the listed eft's are all moving downward in the past few weeks. The list is a various mix for comparison purposes.
I am trying to determine why this area is moving as it is. Are monies just coming off the table with these? Has or is the money moving to more traditional equity plays; or is this a sign of something else?

IYR ROOF PSR URE RWO RWX

Comments appreciated from those who may also hold real estate funds.
Thank you and regards,
Catch

Comments

  • edited February 2012
    They're like a roller coaster. Ran way up in 2010. Than way down during much of 2011. I started a very small position in OREAX early in October. It's still up 25%, so must have really hit it right. Were it a larger position, would have scaled back by now. My guess is they're probably due for a pullback. I doubt they parallel the real estate markets very much in the short term. Seem to run up & down on momentum. In past, believe they ran with the Russell small cap index.
  • Hi hank,
    Thank you. I see OREAX had a big move today. I have not had time to look around into other funds tonight for similar actions. Strange........
    Take care,
    Catch
  • Reply to @catch22: Yep. Down 1.53% today and been trending down for week or so - as you observed. Take care.
  • edited February 2012
    I think you're still dealing with things like this:

    "Atlanta’s 55-story Bank of America Plaza, the tallest tower in the Southeast, is set to be sold at an open outcry auction on the steps of the Fulton County Courthouse tomorrow after landlord BentleyForbes missed mortgage payments. It bought the skyscraper in 2006 for $436 million from Bank of America Corp. (BAC) and Cousins Properties Inc. (CUZ) in the city’s biggest property deal.
    Since the property market peaked a year later, the 1.25 million-square-foot (116,000-square-meter) building has lost 54 percent of its value, Bank of America, its largest tenant, has reduced space and bond investors who helped finance the purchase are on the hook for losses, according to data compiled by Bloomberg."

    “We’re hitting a tremendous amount of that debt coming due,” William Yowell, a vice chairman with CBRE Group Inc. in Atlanta, said in a telephone interview. That will cause “more distressed assets that come to market this year” and may lower the price per square foot on buildings, he said.
    While lenders may face more losses, real estate investment trusts are seeking to take advantage by purchasing buildings, said Jim Sullivan, managing director of REIT research at Newport Beach, California-based Green Street Advisors."

    and finally: "Even with improvements, only 27 percent of loans originated in 2007 at the peak of the market that had so-called balloon maturities in January “managed to pay off,” according to Trepp LLC, a mortgage data provider."

    http://www.bloomberg.com/news/2012-02-06/american-foreclosure-hits-bottom-with-tower-auction-in-atlanta-mortgages.html

    I still think that prime real estate does have the potential to offer some manner of protection (replacement cost, etc) if significant inflation becomes an issue. That said, I think it's tough to be in funds, because I think with a fund you get a mix of various RE companies, but I think you really want the best and the ones with the strongest balance sheets to be able to take advantage of opportunities. As I've said before, I'm not a huge fan of retail, but I do like some EM real estate plays and I do like some of the bigger US re companies.

    The above Bloomberg article is a good read though, in terms of the current situation.
  • edited February 2012
    Correction: Should have said "I doubt they parallell RESIDENTIAL real estate markets very much over short term." Commercial office developments & malls impact them alot. Also hold things like rented storage facilities, mobile home parks (a play on the underlying property), hotels & apartment buildings, home builders, and even building suppliers like Home Depot on occasion. As can see, very sensitive to the economy.
  • edited February 2012
    Reply to @scott: Good point. Also many "stalled" developments - some here in Michigan- where a hole was dug, materials trucked in, and contracts awarded - only to have the developer collapse after bubble burst in '08. On different note, it's hard to fully evaluate how online shopping is impacting brick & mortar sellers (think malls) - but I think it's still in early stages and will become huge as consumers acclimate to it and hand held devices get even better and cheaper. (Did somebody say $1 calculator?) Was recently reported that Walmart's holiday season profits were below expectations. They were able to maintain or boost sales - but only with heavy discounting.
  • edited February 2012
    Reply to @hank: I've voiced my dislike for mobile devices in the past, but I can't help with be impressed with some of the shopping applications. I think it's not only a matter of people simply using their mobile phone to shop (while I've been skeptical of the whole "Best Buy is Amazon's showroom" phrase, I'm starting to wonder if it's true to some degree), but the ability to scan a barcode and see that the item is cheaper a mile down the road. I think not only will retail face competition from online stores, but these devices will make it easier and easier to comparison shop and I'm sure that technology will improve further. I'm shopping on my phone, I scan an item and it shows all the stores nearby and prices, and a store nearby will take $5 off if I come in within the next 5 hours and show a mobile coupon, etc - stuff like that.

    That's why I'm just not into retail REITs, and as I noted in another thread, I think the era of 10 generic strip malls within a few miles of each other is over; mall operators are going to have to evolve the experience and evolve the selection. There are some apps that reward people for coming into stores (Shopkick), but I don't think that's going to be the entire answer and I question the business plans of a lot of these sorts of apps/social media companies and how long they are going to be sustainable (Groupon, etc.)

    Finally, if oil continues higher, more people are going to shop online and I think the Wal-Mart numbers are concerning on a number of levels.

    As for Wal-Mart, WalMex is apparently not doing too bad at all:
    http://finance.yahoo.com/news/Wal-Mart-de-Mexico-4Q-profit-apf-1831700464.html?x=0
  • edited February 2012
    Reply to @scott: Good point - Recently bought a LED flashlight @ local retailer for $29.00. He offered to take it back if I wasn't pleased. Got home and found same item for $18.00 @ Amazon (ships free with Prime membership). I decided to keep the store-bought one and ate the loss out of respect for the merchant who had spent time showing off various flashlights. However, illustrates the kind of pricing pressures retailers are facing. And yes ... at over 10 miles from Walmart, price of gas is altering our habits - more buying online and fewer trips to the store. Now, Walmart's got a pretty decent online shopping site and can probably go nose to nose with Amazon - but doesn't get around issue of how this will impact reits.

    BTW: Things we buy that you might not normally associate with Amazon (Hate to sound like a AD) coffee, flashlight batteries, and vitamins. You'll notice - all consumables.
  • edited February 2012
    Reply to @hank: The interest that I have in REITs (and quality ones in particular) is this element (from the article above): "Cousins, the Atlanta-based REIT, bought Promenade Two, an Atlanta building in November that was 58 percent leased when it purchased it after its anchor tenant moved out.

    The price for the 774,000 square foot building was $134.7 million, or about $174 per square foot. The replacement cost is about $315 to $320 a square foot, Larry Gellerstedt, Cousins’ chief executive officer, wrote in an e-mail. "

    I think there could be significant volatilty in the short-to-mid term and issues with debt and other commercial RE issues, but in the longer-term, the question regarding a giant office building in Midtown Manhattan or Atlanta or any major city becomes, how much would it cost to build it today, right now. Is that more than it's currently selling for? I think that is a main interest in my opinion - hard assets in prime locations. The question does become what is prime and that's going to vary - I think major city commercial properties (things like Vornado, Boston Properties and Brookfield, as well as some others, especially those who can be opportunistic - Blackstone hasn't fared well, but their real estate arm may be an example of this) are of far more interest than dime-a-dozen malls and especially strip malls, in my opinion. If looking at real estate, I'd look at the largest players only.

    Amazon still has the no sales tax advantage, which I'm surprised is still there - they must really be pushing/lobbying hard to keep that. Once that goes, I think that's something of a game changer, especially with larger items - Best Buy would probably love it with electronics. Wal-Mart can ship-to-store, but that still means sales tax and driving to get it.

    In terms of a REIT I don't particularly like, I don't particularly like DDR (whose largest tennant is Wal-Mart. A retail REIT I like and would consider if it really came down would be Tanger Factory Outlets - SKT)

  • For what interest it holds, Morningstar has REITs as one of the most overvalued equity sectors (at least as of Feb. 20). David
  • Thanks, David

    Appears there are some sellers working on that status............
  • Never did well in that area myself... got burned a number of times back in the 70's... too many management variables/hidden conflicts in addition to exposure to overall market turmoil. Those were all limited partnerships deals, but once burned...
  • edited February 2012
    Reply to @catch22: Position's so small gonna hang on and ride her down. I'll try remember to give you a shout when it's safe to come in again.
  • I also own this fund. If REITs are expensive the manager can buy more bonds, preferred shares etc. In fact, fund manager is one of the most experienced among Fidelity managers. It is a lower beta exposure to real estate market. Up about 5% YTD. Up about 2% in the last month. Was up 4.7% last year.
  • Hi Investor,

    I agree. Not a hot-dog fund, but that is okay. I, and I am sure, you as well; prefer that our monies continue a smooth and safer ride upward with a decent yield, too.

    Take care down there in "A",
    Catch
  • For a smoother ride I've been enjoying my position in KIFAX since last October, which goes the preferred REIT route, but my stop is always set.
  • Reply to @catch22: Actually 2011 was a good year to illustrate the downside protection of this fund. The balanced allocation is a less risky to gain exposure in REIT sector. I left Vanguard REIT index ETF, VNQ several years ago and invest in this fund. So far, so good.
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