REITS Report

Fresh economic news is out indicating that, as expecting, home prices have fallen. In January, the median price of homes sold fell 3.1%, although existing-home sales in the US rose 3% to 6.46 million-above economists expectations. Residential REITS fell slightly due to a broad sell off in the markets-D.R. Horton was down $1.07 or 4% to $25.76, Toll Brothers fell $1.15, or 3.6%, to 30.51, and KB Home fell $1.65, or 3.2%, to 50.37. As sub prime mortgages keep on defaulting, and banks like HSBC are losing millions, tightening debt markets pose a threat to the largest home builders-especially those not in the luxury sector. Prime mortgage defaults still are low although banks may over react to sub prime defaults and tighten up mortgages across the board.

In the commercial sector, investors are worried over Mortimer Zuckerman's recent exercise of $75 million of Boston Properties options. Many investors looked to Sam Zell's sale of EOP as a cue to begin selling as well. However, EOP was losing money and an executive's exercise of options could mean anything. Many in the commercial REIT industry still believe there is growth to be experienced. With relatively few new office buildings under construction there is a good chance rental rates in several markets will increase over the next two years. EOP's LBO is still sending ripples throughout the industry as Blackstone has already sold $21 billion of the EOP portfolio. Mackowe Properties recently snatched up 8 midtown Manhattan properties from the EOP portfolio for $7 billion in a record 10 business days. The REIT industry continues to be hot and there will most likely be more acquisitions while interest rates stay low.