Real Estate Market Provides Bevvy of Investment Opportunities

Wednesday, 09 May 2012 07:21 AM

By Dan Weil

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With the residential real estate market continuing to drag along its bottom, and the commercial real estate market having climbed only a bit above its trough, now is a good time to consider investing in real estate securities.

Prices are cheap for many of these securities, and the opportunities for gains could be bountiful if the economy sustains its rebound. A raft of investment opportunities is available – from stocks of home builders to exchange-traded funds (ETFs) that invest in properties overseas.

One positive for the housing market is that new home construction should increase 24 percent this year from 2011’s record low, according to Zelman & Associates. Lennar, the country’s third-largest homebuilder, sees a glimmer of hope.

Editor's Note: This Wasn’t an Accident — Experts Testify on Financial Meltdown

“Our first quarter results reflect another quarter of confirmation that both the housing market and the overall economy are stabilizing and that a very real trend is beginning to take shape,” Lennar CEO Stuart Miller said in a conference call.

The iShares DJ US Home Construction Index Fund (Ticker: ITB), an ETF that includes Lennar and other top home builders, has offered a total return of 31.2 percent so far this year. That’s more than three times the 9.7 percent return of the Standard & Poor’s 500 Index during that period.

Investors can obtain a variety of strong REITs – from ones that own office buildings, to ones that own healthcare-related real estate, to ones that invest in mortgage securities.

Brookfield Office Properties (BPO), one of the largest office REITs, has registered a total return of 17.9 percent so far this year. The company benefits from broad geographic diversification, with 59 percent of its holdings in the U.S., 23 percent in Canada, and 18 percent in Australia.

Aging baby boomers should provide a boost to the healthcare-related real estate market. Ventas (VTR) is the largest healthcare REIT. It has generated a total return of 12.3 percent over the past year, compared to 4.4 percent for the S&P 500.

“We think Ventas is well positioned for the long run, as it stands to benefit from increased utilization and demand for senior housing, skilled nursing, and hospitals as baby boomers retire en masse,” Morningstar analyst Jason Ren writes in a report.

If you’re willing to take some risk, you can invest in REITs like Annaly Capital (NLY) and American Capital Agency (AGNC) that use leverage to invest in agency-backed mortgage securities. That allows them to offer double-digit yields. Annaly has a yield of 13.4 percent, while American Capital has a yield of 15.9 percent.

Jonathan Hoenig, a managing member of Capitalistpig Asset Management, extols the virtue of ETFs that invest in foreign real estate, such as WisdomTree Global ex-US Real Estate Fund (DRW).

“Not only are foreign REITs less widely owned than U.S. offerings, but they can serve as a nominal hedge against a potentially weakening dollar,” he writes in Smart Money. “Most importantly, many are exhibiting the quiet price action of a growth stocks, not staid dividend payers we've come to associate with forsaken sectors of the market.”

Editor's Note: This Wasn’t an Accident — Experts Testify on Financial Meltdown




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