Sunday, February 10, 2008

REITS and Commecial Real Estate

"Memo to buyers of commerical real estate who might have cash burning holes in their pockets: Sit tight. ... The proof can be found in the shares of [REITs] which have a remarkable track record when it comes to predicting what will happen to the prices of commercial real estate. ... According to Green Street, REITs in general already are trading 14% below their underlying asset values. Office REITS are trading at an 18% discount. ... In the end, either REITs are too cheap or real estate is too expensive. History isn't on real estate's side", Herb Greenberg at the WSJ, 26 January 2008.

There is a continuous arbitrage between the public and private markets. If the estimated asset values are correct, commercial real estate prices will fall.

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