Friday, March 13, 2009

Bookkeeping: Beginning to Build a REIT Short Portfolio

If you've been following along the blog for any length of time you will know I've literally written 100+ posts about the carnage that is to come in the commercial REIT area - specifically mall based, and office. [Oct 18, 2008: CNNMoney: Mall's Demise Could Doom Communities] [Nov 20, 2008: Commercial Real Estate Finally Hitting Home in Financial Media] [Dec 2007: Credit Downturn Hits Malls]Up through January 2009 I could not short individual names so I was stuck with the time bomb that is Ultrashort Real Estate (SRS) as my only tool to play this. (Ultrashorts are horrific long term hedges) Then since January 2009 these stocks have been in free fall and I hate chasing stocks downward. So I simply shorted the index that SRS is based on which is an ETF called IYR. However, IYR has some decent companies in it...

I wrote a post about what is in IYR here - [Nov 12, 2008: REITs Continue to be a Gold Mine on the Short Side]

This group (REITs) has bounced smartly the past few days as "worst is best" in the first stages of a bear market rally. The danger with shorting individual names is when they rebound they have a nasty tendency to squeeze shorts for 30-50% in a few days. But already they have begun rolling over - I have a list of about 10-12 putrid companies that might not make it out of the other side of 2011. One name SL Green (SLG) is already down 16% today so I already missed jumping back on that on! It is basically a way to play the New York office space market. ProLogis (PLD) is another staring into an abyss.

I'm going to create a basket of REITs as "fundamental" shorts - some of these I should of done at the beginning of 2009 once I could do individual stocks; even if I chased them down after large drops I would of been up 50%+ on some names. Now as I said above, the danger is these can squeeze you big time on any rally so I am going to put a moderate amount into each and trade around them. If we can get to S&P 780-800 I will be more interested in hefty accumulation.

The first two candidates are Kimco Realty (KIM) and Macerich (MAC) - I was hoping these would rally more so I could short them higher but I do not want to repeat the mistake I made in January-February 2009 of waiting for a "perfect" entry point and missing the whole trade.

EDIT 1:30 PM I added Duke Realty (DRE) as well

REITs will be to 2009 and 2010 what financials were to 2008. We already have a few in the sector on death's door... more to come as half empty strip malls and 70% full office space fills the land. [Nov 11, 2008: General Growth Properties Looks to Join Its Tenants]

In an ironic note I was just short Ultrashort Real Estate (SRS) 24 hours ago anticipating the rebound. ;) Today is one of the few days in the past 1.5 years I do not own SRS.

I will be adding to this basket as time goes by... I put about a 1.3% stake into both names today just to get a toe in the water. I wish I had been paying attention to SL Green because that would of been my third. My hope is these stocks actually surge higher on Kool Aid so I can get scaled in at higher prices on the shorts. Again these are not fast money scalps, these will be with us for a long time. There are more names coming - this will probably be a 6 position type of basket by the time I am done. Commercial real estate will be the next disaster as our national savings rate rises (hammering retail) and our job market continues to degrade - no matter what Kool Aid or government assistance [Dec 22, 2008: Wall Street Journal - Property Developers Ask for Government Bailouts] is tossed their way. Since I'm relatively bullish on the market unless we break S&P 741 I am going to build my positions slowly.

The Macerich Company operates as a real estate investment trust (REIT) in the United States. The company, through its majority-owned partnership, The Macerich Partnership, L.P., engages in the acquisition, ownership, development, redevelopment, management, and leasing of regional and community shopping centers. As of June 30, 2005, it owned or had ownership interests in 76 regional shopping centers, 20 community shopping centers, and 2 development/redevelopment projects.

Kimco Realty Corporation is a publicly owned real estate investment trust. The firm engages in acquisitions, development, and management of neighborhood and community shopping centers.

SL Green Realty Corp. is a real estate investment trust (REIT). The firm engages in the property management, acquisitions, financing, development, construction, and leasing. It also provides tenant services to its clients. The firm invests in real estate markets of the United States. It primarily invests in commercial office and retail properties.

[Jan 6, 2009: As Vacant Office Space Grows, So Does Lenders Crisis]
[Jul 21, 2008: Add Mervyn's to Our Growing list of Retailers Heading to the Great Sunset]

Short IYR in fund and personal account; short MAC/KIM in fund

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