GeneG posted on July 29, 2009 17:05
Trouble is brewing in the commercial property industry, with nearly every sector from hotels to retail centers to office buildings facing uncertainty.
Jay Leupp, senior portfolio manager of the Grubb & Ellis AGA Realty Income Fund, says it could take as long as three years for occupancy to grow and building owners to be able to raise rent.
Office properties and factory space appear to be the worst off, as businesses continue to trim operations and delay expansion plans. Reis Inc. reports that the nation's office vacancy rate hit 15.9 percent in this year's second quarter -- the highest vacancy level in four years.
Harry Rady, chief executive of Rady Asset Management and former chief investment officer at American Assets, comments, "In this environment, office tenants won't renew unless it's at a ridiculously low rate, and they typically renew for a 10-year contract. This caps the value of the asset." Investors who are very bearish on the sector might consider purchasing the ProShares UltraShort Real Estate exchange traded fund (SRS), which shorts the Dow Jones Real Estate index.
In terms of REITs, investors are advised to look for those with the strongest balance sheets and the most cash on hand. They will be the ones most likely to acquire assets at bargain-basement prices and still have enough funds to cover any losses on existing property investments.
Source: CNNMoney, Katie Benner (07/27/09)