Free Republic

Like the song “Walk away Renee,” the owners for the San Francisco Union Square Hilton and Park 55 Hotels are walking away from their sizeable loan payments. San Francisco is definitely feeling the blues. But it isn’t just San Francisco. Phil Hall reports that Fitch Ratings reduced its 2023 outlook for the U.S. real estate investment trust (REIT) sector outlook from “Neutral” to “Deteriorating,” citing the tumult in the commercial real estate space. While Fitch noted that most of its rated REITs “have the capacity to withstand such a slowdown within rating sensitivities [and] those with ample dry powder could...

Regulators should boost oversight of the largest real-estate investment trusts that use borrowed money to invest in mortgage-backed securities because rising interest rates may push the firms into asset sales that destabilize markets, the International Monetary Fund said. A version of that scenario occurred during the rise in rates that began in May, the IMF said. Repercussions might roil the REITs’ lenders, disrupt the $5.3 trillion market in which they invest and damage the broader U.S. economy, according to its Global Financial Stability Report released today. Here is the report. Mortgage REITs have suffered since the May 1 surge in...

A MAIN benefit for those who own real estate investment trusts has been their low historical correlation to the rest of the financial markets. In other words, REITs have tended not to move in tandem with most stocks and bonds, thus making them good portfolio diversifiers. All of that seemed to change this year amid the deepening credit crisis and Wall Street’s meltdown. Just as stocks fell fast and furiously, so, too, did most REIT shares. (And at those times when stocks were rallying back, REITs also moved higher.)

Shorting REITs requires an iron constitution. In the last 12 months REIT prices are up 17% and over the past five years the iShare Dow Jones REIT Index has nearly doubled. Jon Fosheim, manager of hedge fund Oak Hill REIT, has been shorting REITs since January 2005 (" Shorting Skyscrapers"). Despite the bullish run of REITs, Fosheim has been able to keep his limited partners happy with positive returns. How does Fosheim do it? By pair trading, or hedging every short he enters into by simultaneously going long a stock he thinks will prosper. In all, he usually has roughly...