Risk and Return

Emma James of the Baton Rouge Business Report interviews myself, Mike Patton of Integrity Wealth Management (a pretty good egg from what I know of him) and Professor Kelley Pace of LSU on the subject of Real Estate Investment Trusts (REIT’s.) I think she does a pretty good job on what is in fact a very complex issue at the moment.

On a longer term basis public REITs are reasonably valued, and the very possible collapse in the Commercial Real Estate market will give public REITs with their more flexible capital structures the ability to buy some very attractive property at distressed prices. However, they will likely be under tremendous pressure in the shorter run, and the overall market environment is likely to be unkind as well. Which means we may get a chance to buy them at a much cheaper price down the road, with the opportunity for them to profit from the distressed property market still in front of us. It may seem a bit like dancing on gravestones, but I would welcome it.

Unlike 2006-2008 I am not of a mind to go “short” publicly traded REITs however, as reasonable long term valuations make that potential decline far from a given.