Difficult Real Estate Markets Mean Bad News For Reit Investors

Real estate has at some times been a terrific investment and, at other times, a terrible investment. Right now, all available information suggests that real estate, as an asset class, will fare reasonably well through the rest of the decade. A favorite observation among stock traders, after a long bear market that has finally turned around and moved up strongly, is The easy money has already been made. Despite weak real estate markets from 2001 through 2004, property values held up well due to...

The Bias Of Traditional Real Estate Investors

Traditionally, most real estate investors have chosen to put their money directly into property apartment complexes, shopping centers, malls, office buildings, or industrial properties and not in real estate securities like REITs. In other words, bricks and mortar, not stock certificates. Direct ownership historically has provided the opportunity to use substantial leverage, since lenders have traditionally been willing to lend 60-80 percent of the purchase price of a building. Leverage is a...

Reits Are A Liquid Asset

A LIQUID ASSET or investment is one that has a generally accepted value and a market where it can be sold easily and quickly at little or no discount to that value. Direct investment in real estate, whether it be a golf course in California or a skyscraper in Manhattan, is not liquid. A qualified buyer must be found, and even then, the value is not clearly established. Most publicly traded stocks are liquid. REITs are real estate-related investments that enjoy the benefit of a common stock's...

Cost Of Equity Capital

Important as the concept is, there is no general agreement on how to calculate a REIT's cost of equity capital. There are, however, several ways to approach this issue. One quick way to determine a REIT's nominal equity capital cost is to estimate the REIT's expected per-share FFO for the next twelve months. This per-share FFO should then be adjusted for any additional shares to be issued and the expected incremental FFO to be earned from the investment of the proceeds from such new share...

Finding Net Asset Value

UNFORTUNATELY, A REIT'S NAV is not an item of information that can be easily obtained. REITs themselves don't appraise the values of their properties, nor do they hire outside appraisers to do so, and very few provide an opinion as to their NAV. Net asset value is not a figure you will find in REITs' financial statements. However, research reports from brokerage firms often do include an estimate of NAV. Also, investors can estimate NAV on their own by carefully reviewing the financial...