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The “Hidden Value” of REITs Is Going Public Quickly. Those Who Get On Board Now Stand to Double Their Money in the Next 30 Days.
The “worst bet in the world” is suddenly looking a lot better. For months you couldn’t get a word in edgewise on the REITs without getting slammed by some know-it-all: “Why on earth would you want to get into real estate right now! Haven’t you heard that the homebuilders are all going bankrupt?”
Maybe they are, and maybe they even deserve it. Heck, in my neck of the woods, they were trying to shoehorn $400,000 townhouses into the middle of highway clover leafs, fronted with billboards reading, “If you lived here you’d be home by now.”
But I’m not trying to talk anyone into homebuilders. Really. What I have repeatedly tried to point out is that the “Real Estate” tag has been applied to a broad range of biz models, some of which are truly awful, some of which are brilliant, and all of which are available dirt-cheap.
Buy the wrong one and it could be years before you recover. Believe it or not, this is wonderful news because it has driven the whole sector down. If you buy the right real estate play right about now you could be locking in triple-digit gains by late fall.
The trick is relatively simple: Homebuilders do stink, but commercial real estate managers definitely don’t. In point of fact, the guys that rent out office space in New York and keep the malls humming in L.A. are bringing in more cash than ever.
Q3 number are still filtering in, but out of 79 major markets tracked by real estate research firm Reis, Austin, Texas, topped the list with 5.6% effective rental growth, followed closely by New York City at 5.4 %. San Jose, California; Houston, San Francisco, Boston, Seattle and Las Vegas all came in ahead of the national average growth rate of 2.4%, while Tacoma, Washington, and Los Angeles logged in at 2.3 % and 2.2%, respectively.
Note that even this sector is without its downside: This quarter’s 2.4% was a marked drop from last quarter’s 3.5% growth, leading some to wonder whether rent growth has peaked. I believe that this shallowing out of the rising trend is a direct result of the mid-summer hiccup and will resolve itself in Q4.
But hey, at least in commercial real estate we are arguing about “good” or “better.” Certainly a far cry from the homebuilders’ “bad” or “worse.” For better or worse, the homebuilding and subprime mess has acted as a brake on all REIT shares.
Now that is coming to an end: Over the past eight weeks, the Dow Jones U.S. Real Estate Index Fund (IYR) has quietly put on more than 21%. Certain individual components, such as Kimco (KIM: NYSE) have doubled that. WOW readers who bought into the KIM calls recommended back in August are currently looking at 80% gains.
There are still opportunities here, but only for those who act reasonably quickly. Call options against the IYR are still lagging the underlying asset by a day or three. An example: The December 83 calls (IYR LE) recommended to WOW readers in May and again in July are available for $2.40. The IYR is putting on $1.75 a week. With a current delta of 0.43, these options are slated to more than double in value over the next 30 days.
Adam
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