Struggling REITs ripe for the picking

One of real estate’s most highly regarded portfolio managers, Marty Cohen, sees growth potential and opportunity in the commercial real estate market. “This is probably one of the most exciting times,” Mr. Cohen, co-chairman and co-chief executive of New York’s Cohen & Steers Inc., said today while speaking to the annual New York University REIT Symposium in New York. “I think the housing crisis and subprime catastrophe is the best thing that ever could have happened to commercial real estate.” A year ago, he said, there was a glut of cheap money chasing after real estate, and if that had continued it would have driven real estate prices off a cliff. “We were about to do that a year ago, but fortunately, the capital markets seized up, and commercial real estate owners, developers, buyers and sellers were brought to a halt,” he said. Financing dried up, he said, and valuations came down from their frothy levels. Since then, real estate investment trusts have been through the “worst bear market” in REIT history, with a 35% decline between a peak in February 2007 and a nadir in January 2008, he said. Many are trading at the biggest discount ever to the value of their underlying assets, or net asset value. A proliferation of investors shorting REITs exacerbated the stocks’ problems further. “If I’m right, I think a lot of the distress and depression will turn into opportunity for our industry,” said Mr. Cohen, noting that this is just the first year of an expected eight-year cycle. He emphasized that it’s perception — not fundamentals — that are keeping REITs and the commercial mortgage-backed securities market down.