Real-Estate Mogul Says Quality REITs at Fire-Sale Prices

Barron’s sat down and interviewed real-estate veteran Marty Cohen , co-CEO of Cohen and Steers, who gives a sense of optimism to the REIT market and that there maybe light at the end of this long and dark tunnel.

Similar to the consensus among most REIT analysts, Cohen agrees that the sharp downfall in REITs came at the hands of the swift contraction of the credit markets. Cohen states,

"When credit began to constrict, demand for real estate and public REITs disappeared. For a while REIT prices stabilized, but by fall, it appeared that the economy was falling off a cliff and the financial system was collapsing; the second down-wave was steep and swift. Without credit, and with great uncertainty about the future of occupancies and rents, real estate and REITs became impossible to value."

With the difficulties in valuing REITs, Cohen believes there are possibilities out there to pick up REITs at what he deems extremely low prices and the bottom is near, maybe even in 2009:

"They are trading at steep discounts to asset values, even using our reduced estimates of value, historically high dividend yields and low price-to-cash-flow multiples. The single most important factor affecting a recovery will be the course of the economy. Fortunately, in this cycle there hasn’t been a great deal of overbuilding, which would have worsened the outlook considerably, as it did in the early 1990s. We expect the record fiscal and monetary stimulation being put in place worldwide to at least stem the economy’s decline. We should start seeing evidence of this by the end of 2009, when economic statistics begin to suggest a bottom."

Cohen goes on to give his take on the new IRS rule allowing REITs to pay its dividend in stock. He argues that it is the single worst idea in the industry in a long time and believes any investor with a choice between stock or cash as a dividend would take cash.

At the end of the interview, he asked to give some of his top picks for REITs, which we have outlined for you below.

Marty Cohen’s Picks

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Tags: Cohen and Steers, Marty Cohen, Reit, reits, Simon Property Group   Posted in News