Monday, April 6, 2009

Cohen & Steers Heart Commercial Real Estate

An amusing article in the WSJ today discusses the newfound sweeping hope across the REIT space. The hope, by the way, has to do with the recent stock offerings by SPG, AMB and KIM (the last one Zero Hedge had quite a few things to say about). WSJ provides a good assessment of the situation:
Vacancies are still zooming up and property values are still crashing down. But for now, investors seem to have enough confidence in the long-term value of office buildings, warehouses, and shopping malls to provide fresh capital to REITs they think can survive the credit crunch and the recession.
Additionally, the article provides some rose-colored glasses spin courtesy of a fund that is elbow deep in the REIT space:
Cohen & Steers Inc. co-CEO Martin Cohen, an influential REIT investor whose company bought major positions in all three of the recent stock offerings, says he's willing to provide equity to 10 to 20 "realty majors" - the leading companies that will be able to ride out the downturn. The others will have to fend for themselves and about one-third of all REITs, Mr. Cohen estimates, simply won't survive.

Those might become merger or acquisition targets for private funds and healthier REITs. With a shakeout still to come, investors contemplating the sector need to choose carefully.
So we decided to take a closer look at Cohen & Steers' portfolio. And the result: I Am Pumping-My-Book's Smirking Lack Of Surprise: out of the company top 20 position, virtually all holdings are directly related to commercial real estate. The top 5 names held by C&S are the who's who of the SRS: SPG, VNO, PSA, BSP, EQR (source: Thomson One Banker). Our surprise and amusement grew when we ran a year-to-date P&L of C&S top 20 holdings simply based on the company's disclosed December 31 holdings. The result: a loss of of over $1.6 billion on the top 20 holdings which at closing today had a market value of $4.1 billion: a 30% loss over the past 3 months.

Taking a cue from none other than the government's investment advisory book, C&S is more than happy to "invest" whatever cash it may have lying around into its existing holdings, as it really has no other alternatives: booking the positions and converting the unrealized loss to a realized would likely not pass too well with the fund's Limited Partners. Another word for this phenomenon is dollar cost averaging: C&S at this point is hoping that eventually these CRE securities have to go up. A couple more upgrades from ML and others and they may well be on the right track. However, with limited direct options, it is obvious that Mr. Cohen has no other choice but to stand behind his bet and valiantly proclaim that "he's willing to provide equity to 10 to 20 realty majors." In the meantime Zero Hedge is even more valiantly expecting the most recent CRE remittance report and will be happy to disclose just how much of the tide has really turned.

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Anonymous said...


Jeebus. Just taking a casual drive about town I can see the writing on the wall. Traveling around to cities for work I see more of the same:

"For Lease",
"For Sale",

at alarmingly high rates. Additionally I'm seeing developers putting the finishing touches on construction projects that have been in the pipeline for the last 9-12 months, adding to supply.

Grandma use to say "A Fool And His Money Are Soon Departed".

The investors that the WSJ article points to are proactive participants in destruction of personal wealth.

today's mall, tmw's skate park said...

when is the remittance report due out mewonders?

Anonymous said...

might be wrong here, but i believe C&S only has publicly traded accounts so they would have to be marking to market value.

Anonymous said...

you know that REITs have implied cap rates in double digits right? REITs are not in trouble now (they're down 70%). the private market is another story. like the 90's, they'll be net winners coming out of this...

Anonymous said...

As a former holder of several C&S closed end funds, I gotta say what's happened to them is nothing short of scandalous. Many have dropped 90%. The leverage, the Auction Rate Securities mess, and the implosion of the REIT sector has created a perfect storm, and a real disaster for investors like me who bought the line that REITs were uncorrelated to the market and might be a relative safe haven from a down market.

That said, Marty Cohen might be right. Even though commercial properties have further to fall and there will be more bankruptcies, the fall in the REIT stocks has more than discounted these future declines, IMHO. There are REITs out there selling at absurd valuations--all they have to do is avoid bankruptcy and they could be home run investments in a few years, especially in an inflationary environment.

Things are bad, but the world is not coming to an end.

Unknown said...

It is common knowledge that real estate investments are not the cheapest and you will need to know what you are about to invest in before you start.
The first step towards making that good real estate investment is the planning stage. This involves gathering as much information as possible about what you want to make an investment in.

Toronto Real Estate said...

REITs are certainly facing a lot of challenges from the current situation, but it's not the end of the world indeed.

Take care, Julie

Richard said...

Great work! Since your list only includes their top 20 holdings, it does not list the weaker REIT holdings like ACC & ARE that are only valued in the $25-50 Million range.

The writing is on the wall - that fund is going to get decimated.

Noc said...

I’ll bet that many of you in seeking the answer bought a lot of books, ebooks and attended many real estate investing courses, possibly even across states. Did you get what you want? Did you have a satisfying great, result from your purchases and attendances? Have you really learned how to earn big in a real estate in a short span of time?