Putnam portfolio manager wary about commercial real estate

While Putnam Investments portfolio manager David Hilder is optimistic about the financial sector, commercial real estate and regulatory reform may hold some risk for diminished returns, he said at a press meeting yesterday in Boston. “The recovery has begun in the [United States] and the rest of the world,” said Mr. Hilder, who manages the $8.2 million Putnam Global Financials Fund (PGFFX). “The government support [for financial firms] and stress tests for banks have brought confidence back to the financial system,” he said. “Capital markets will lead the way and we have more exposure to investment banks because of that and minimum exposure to regional banks.” But commercial real state presents potential risk. “This recession has largely been on the consumer side,” Mr. Hilder said. “It’s very difficult to gauge how commercial real estate will play out.” However, some direction can be gleaned from recent sales of large commercial buildings, he said. “It’s very clear that properties that traded in 2005 and 2007 can expect to market and sell today at 50% of the price of what that last trade was,” Mr. Hilder said. “But if the commercial buildings have sufficient tenants and enough cash flow to support their debt, then the buildings will continue to run and debt will continue to be serviced.” Mr. Hilder said that he had “made a decision to be very cautious about banks that have high concentration in commercial real estate loans, and put money into banks with less exposure” Regulatory reforms in the United States and globally represent still more unknowns, he said. For example, the Sept. 5 meeting of the G-20 finance officials did not include specific numbers for bank capital requirements, he said. The Global Financials Fund is one of nine global-sector funds the firm launched earlier this year. Putnam created the lineup with six new funds and three existing sector funds that previously did not have a global mandate.