Investment Analysis
Where's the Money?
By Anthony M. Graziano, CRE, FRICS, MAI |
Asked where real estate investors are putting their money (if unable or unwilling to invest in real estate), Integra analysts ranked the capital vehicles in most to least preferred order.
From the looks of REIT prices in April 2009, the REIT ranking seems valid, which indicates that savvy investors should start analyzing the balance sheets of strong regional and national REITS. For one, the current prices are being punished because the REIT balance sheets are being marked-to-market in a capital-starved environment, but these are mostly paper losses. Further, we are facing a massive maturity problem of five-year interest-only commercial debt, combined with ongoing bank failures and REIT/commercial bankruptcies. These will force asset liquidations at a scale that cannot be absorbed by only local and regional investors. Strong REITS with good management are best positioned with low leverage to ride out the storm and take advantage of scale and outsized returns in the coming three to five years.
The stock market volatility will continue, but with the Dow Jones average having dipped to nearly 50 percent of its peak in early 2009, the market players with equity will not very likely commit all of their capital to real estate and lose the advantage of accumulating well-priced equities. This probably signals continued near-term constraints on equity for real estate investment.
Notably, our analysts believe most investors are stacking government securities and small increments in FDIC institutions. Perhaps this is wishful thinking in hindsight as we are sure there is more than a handful of investors who wish they had converted their allocations to 90 percent cash last August. What is painfully clear is that the current “stimulus” plan will ultimately favor inflation, so holding cash much past 2010 will be punitive as a long term strategy.
|
Capital vehicles
|
Average rank of how much money invested(1 being most used )
|
|
Government securities
|
2.7
|
|
FDIC insured banks
|
2.8
|
|
Bond (debt) market1
|
3.5
|
|
Existing real estate reinvestment
|
4.5
|
|
Stock (equity) market
|
4.8
|
|
Real estate debt instruments
|
5.7
|
|
Hedge funds
|
5.9
|
|
Real estate investment trusts
|
6.0
|
Source: Integra Realty Resources survey