You’re about half-right and some 5 years behind. REITs purchase ‘unattractive’ properties because they are at bargain prices. Value is then created by the asset managers employed by the REITs. How? Included in the loan package is a substantial reserve, released to the buyer only after certain contingencies are met. Those contingencies include leases and tenant improvements, which, when leveraged equate to many times their cash outlay, which is then reimbursed through the release of the reserve. The result, within 2-3 years is an asset worth 2 times the original purchase price. Some of the most reliable are re-habed medical buildings. I work with this stuff every day and can assure you there are a few smart people making solid money. I think you may have been involved with speculative paper for so long, you’ve forgotten that an investment must be tied to something of intrinsic value in order to withstand the vagaries of the economic cycle.
Wait! Look! CB actually mentioned LLC’s (limited partneships) as an example of a desirable investment, and a hedge against market Volatility.
OOh Jeez! Stop! I can’t take it!
Oh boy, after today I needed a good laugh. Thanks CB.
Citing LLC’s in this manner is like saying after an airplane crash “Ha! you fools. I told you airplanes were unsafe! That is why I travel by Zeppelin!”
wait wait
“You’re puny american military is no match for the 2nd largest standing army in the world. If you come to Iraq you will face the mother of all wars.”
I think you may be the janitor. Your perspective is certainly one of a consumer rather than an investment ‘professional’.
LLC’s are not an ‘investment.’ They are an entity for holding title to an investment, and used very often for the acquisition of income property by groups of people, especially real estate professionals.
Fine. CB which specific Reits do you think are worhtwhile investments?
I think SPG, FFA, and WRE are standouts in quality.
If I had to venture into the market, I’d stick with commercial properties where I’d have an analyzable cash flow.
By medical properties, are you referring to hospital reits or those that get involved with buyback leases to small practices or HMOs.
Be specific now.
The only speculative paper I play with is in the bathroom. As a religious tenant I hold only investment grade bonds, as I don’t have the time to follow the underlying co’s compared to historically obtainable 11%+ equity returns.
“LLC’s are not an ‘investment.’ They are an entity for holding title to an investment, and
used very often for the acquisition of income property by groups of people, especially
real estate professionals.”
Let me get this straight. The above doesn’t sound like a limited partnership to you?
Reits and LLCs bear more than striking resemblance to their direct forbears and kissing cousins REMICS and limited partnerships. They do so because they are substantively the same thing.
Now what do you suppose LLC stands for?
What precisely was limited in the term “limited partnership?”
Here. I won’t keep you waiting. LLC is a Limited liability Corporation.
The “limited” partnerships of the '80’s limited liabilty to the passive partners.
When the tax law changes put the kibosh on passive losses, the advantages to structuring these things as partnerships was wiped out. Consequently, you will rarely see them formed as “partnerships” though their purpose and function is identical.
Regarding ‘which’ reits one would purchase- that question would properly be addressed to a savvy real estate investment specialist. I do not sell investments. I manage assets and create value in them for a fee. I assume by ‘commercial’ properties, you mean as opposed to residential. Correct. Residential properties are an entirely different animal, about which many books can (and have been written).
By medical properties, I mean medical offices leased to private practice physicians. One 5 year lease can be worth over a million dollars. A properly managed asset will completely debt service itself and throw off considerable cash (after the aforementioned improvements have been made as an inducement to longer leases) within a short time. Then, of course, provide a significant gain on sale. I am not familiar with the intricacies of ‘buy-back’ leases, but it sounds shaky. Care to explain?
Yes. A Limited Liability Company (LLC) is an evolved ‘limited partnership.’ It is the same ‘pass-thru’ entity redesigned to allow for the creative financing necessary to put together some more exotic deals.
Wow. That’s going back awhile, to the 75% tax rates, when there was an advantage to investing for a loss- the idea being that each partners ‘loss’ would be more than their cash investment, thereby creating a deduction. Those rules went away in, what?, 1980 or so?
Check this: PEOPLE DON’T INVEST TO LOSE MONEY ANYMORE. They invest in properly managed real estate (retail centers, business parks, medical buildings) in order to realize gains through appreciation. Real property ALWAYS appreciates.
Sheesh. Don’t be so touchy. I’m only trying to point out that although a 7% drop is not a big deal, there are reasons to be concerned about investments in a highly speculative market, and that drop may be a precursor to that market seeking its true value. I have no idea what that value may be, an analyst like yourself would be much better able to make that assessment.
Sure, there have been lots of bad reits-mostly because 1) they were the wrong property (location, location, location) 2)the financing package wasn’t well negotiated, 3) (the big reason) they were poorly managed. Lots of IPO’s have suffered the same fate.
How about of instead of addressing every single glaring error, I just address the most basic and profound.
I will answer your and explain a buyback lease.
Most commonly a buyback lease is used by Drs. or Lawyers to structure the financing of the property on which there business exists.
Dr. Killpatient takes out a loan, buys a property and builds a business to suit his practice. He then sells that property, and leases it back from the entity to which he sold it. This entity is frquently an LLC. Frequently the Dr. is a principle in the LLC.
This gives the Dr. several tax and liability advantages over owning the building directly, especially if their are other Drs. involved in the practice.
It is perhaps the most basic and well known tool of property management in existence. It is used extensively by Drs. Lawyers, shipping Co’s, Food Franchises, etcetera etcetera etcetera.
Your ignorance of this makes your assertions of expertise in the field of property management highly suspect.
You also specifically mentioned Reits as hedges against the stock market. You then claimed that you were not qualified to name any specific Reits to back up this claim (though you purported ownership in several.)
I think the truth is that you are not qualified to pick your nose.
Your ‘knowledge’ of investments sounds like it comes from reading a variety of prospectus’ in the mail room where you work. Quite obviously your perspective is one of a consumer rather than a creator of wealth and value.
You still don’t shit about securities or real estate management.
Refute the argument with a fact or two. Show me a decent reit, or explain what is that you do in real estate management that you are unfamiliar with its most basic arguments
::Summoning the Ultimate Death Word from the incomparable depths of Wallyworld::
Where do you get the idea that buyback leases are the ‘most basic and well known tool in property management?’ It sounds as though the investor base would be limited- to the physicians with leased offices in their own properties- not something widely available to others.
I don’t mean to insult you. You obviously have some perspective on the current stock market conditions. I’m sure you would agree that the market is highly overvalued. It just bugs me when the wailing and moaning an gnashing of teeth starts over something like a 7% drop. Historically unique, but how could it be unexpected?
The original issue I took with you was your automatic rejection of anything other than traditional broker negotiated investments.
I haven’t been talking to you about the stock market, I’ve been talking to you about real estate and the stucturing of commercial property deals. You claim to manage these properties.
Buyback leases are not ususally brokler-bartered (and you use the term incorrectly.) In fact they are the most common type of deal that subsequently recquires the services of someone in the profession you claim to be a part of. I am personally acquainted with several such people, and their firms.
As a commercial property manager, and one that specifically works with the buildings of medical practices, your ignorance of the basics is simply not credible. And these are basics to one in your field. My familiarity is only tangential, yet it clearly exceeds yours.
As for the stock market, the 7% you refer to applies only to the broad averages and only to today. This is the 5th day in a row, and the last few weeks have produced broadly held sectors such as technology down 40% or more.
The ramifications of such a drop off in wealth have broad applications throughout our economy and are a legitimate cause of concern .
Well, Scylla, you are obviously a salesman of some kind because you talk a good game, but your analysis falls apart upon close inspection.
I did not refer to buyback leases as broker bartered. I was refering to the investment vehicles you claim to sell, offering 20-30% returns, no doubt. Those days are soon to be over, as the market will soon hemmoraghe money. Substantive receptacles such as real estate will be the beneficiaries.
The term ‘broadly held sectors’ you used refers to - what? - the number of greedy fools who bought the song and dance you sold them? Perhaps they are pigs. And you know what happens to pigs. They get slaughtered.
On the other hand, I gave you a specific overview of how value is created by a REIT. We do this every day. You chose to ignore it, and attack me personally, instead.
I thought I was a janitor? No wait I worked in a mailroom? No that’s not it, now I’m a salesman?
You’re still just a transparent dumbass though.
How specifically was it that you “Created” value in a Reit (not that you actually know what one is)??
I must have missed that post. Let me check.
Hmmm. I guess that part you are referring to must have got lost in a computer glitch. Perhaps it was deleted by a moderator.
If it will make you happy, I will gladly concede that you were logical and intelligent and supported all your arguments in this imaginary post of yours.
I invest in stocks only. Mainly tech stocks which are protected from inflation. Now indirectely inflation fears effect the tech stocks as well as most everything else.
The Institutional Investors have a lot of the money on the sidelines, but they are waiting for the the market to bottom out before they jump in.
PE is important, but it is ultamately the company itself which is most important.
I still don’t see a strong comparison at all between Japan late 80s and now. We have a whole new animal on our hands here.
Bonds are lame.
For every action, there is an equal and opposite criticism.