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Minyan Mailbag: Plays on the Rest of Real Estate


There are a slew of office REIT's out there, but if one is looking for a sector play...


Editor's Note: The following mailbag appeared on the Buzz & Banter at 2:19 PM and is now being republished for the benefit of the broad Minyanville community.

Prof. Zucchi,

I see that Ken Heebner is predicting falling high-end real estate and office space price... Are there indexes, individual stocks in the commercial and office space area that would be appropriate to fade?

-Minyan Mike

Minyan Mike,

There are a slew of office REIT's out there, but if one is looking for a sector play the iShares DJ Real Estate (IYR) is a "built to suit" (sorry, could not resist) vehicle. I have been short it almost since Sam Zell's sell-out to Blackstone (BX) earlier this year, and I still am. But depending on your time horizons, I think the first batch of bad news out of the REIT's may already be in the price.

I think those who see a major correction in the commercial real estate are correct, but I doubt it will be anything remotely close to what we are seeing in housing, and my sense is that this is going to be a mid '08 story. I say this because for now there is still a long line of funded vehicles that must invest by the end of the year, and even next year. I have suggested before that the managers' incentives for making investments (bad or good as they may turn out to be) are too high for cash to remain sitting in bank accounts. I am not bullish on commercial real estate. I'm just not bearish as a function of time and price.

Another area you may want to investigate are the real estate brokers and service providers. My sense is that the brokers have grown so big that they may have a tough time adjusting their cost structure in a hurry; and a company like Costar Group (CSGP) may have decided to bulk up for growth just at the wrong time.

Good luck,

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Positions in IYR and CSGP.
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