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Time to Buy REITs? Maybe Not.


Yesterday I linked to a story from the New York Times suggesting that it might be time to look at REIT stocks. Today, Business Week's Hot Property blog has a counterargument.

But with the stock market now showing some life is it time to buy these real estate-related firms?

No, says Michael Kirby, director of research Green St. Advisors. Green St. follows real estate investment trusts exclusively so when Kirby says ‘don't buy them' it means something. Overall his buy recommendations have returned 27% annually since 1993. His sell recommendations have appreciated .3%. The average REIT returned 12% on average over that time, according to the National Association of Real Estate Investment Trusts.

Kirby's beef is that relative to corporate bonds; REITs still don't look like a good deal. REITs are presently yielding 5.5% versus 7.8% for corporate debt. Moreover, REITs look expensive on a price to earnings basis, trading at 18 times earnings versus 12 times for the S&P 500.

Danger looms, particularly for office REITs, as some $185 billion in mortgage debt will need to get financed in 2010-12. It could trigger massive defaults, similar to what happened in the housing market.

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Elaine Misonzhnik

Senior associate editor Elaine Misonzhnik has been writing for National Real Estate Investor since June 2006 and has covered commercial real estate for more than 12 years. She first became...
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