This is an interesting piece on the equity markets from today. Tony Dwyer of FTN Equity Capital and Lee Munson of Portfolio Asset Management finished their interview talking about the commercial real estate market. Granted, they were discussing the equity market surrounding REIT’s, which usually leads market fundamentals. Regardless, the two made points about the market that we have discussed in this forum. In a nutshell, here were their thoughts (you can click on the picture to watch the entire piece. They begin the meat of the real estate discussion at the 3:20 mark of the video):
- REITs and Institutional buyers make up a significant portion of all real estate in the market
- Yes, refinancing with banks is a challenge….BUT, the REIT’s don’t necessarily have to worry about refinancing. Their stock prices have risen quite a bit and they can access equity through the markets to re-balance their debt to equity ratios.
- The two analysts cited Boston Properties as a REIT that took advantage of the current market price to recently access more capital.
- The negativity is already priced in to the market
- The US Government has said that it will intervene in markets that are not functioning properly. The government will not allow the Commercial Real Estate market to take the banking system down.
I would add to their argument that institutional buyers have written down their fee simple real estate assets substantially and with the rise in the stock market are potentially significantly underweight real estate according to their investment policies. They could very well be looking to increase their real estate holdings in the near term.
In the end, the market is profoundly complex and resilient. In spite of all the negative press surrounding commercial real estate of late, this market may not behave they way many of the pundits are predicting, with a massive crash that jeopardizes the foundation of our financial system.
What do you say?
