Real estate sector is falling

Sven

For those who invested in REITs. this sector has been declining rapidly to match that of S&P500. Shopping malls such as Simon Property are sizable components in most REIT funds. Many are having problem of paying their bills due to the lockdown across the country.

The biggest U.S. mall owner, Simon Property Group, has furloughed about 30% of its workforce, CNBC has learned, as the company copes with all of its properties being temporarily shut because of the coronavirus pandemic.

https://msn.com/en-us/money/companies/largest-us-mall-owner-furloughs-nearly-a-third-of-its-workforce/ar-BB11Y4jU?ocid=iehp&li=BBnbfcN

Mark

Yes, not unexpected. I have REIT investments and have seen their valuations cut 50-60%. In my mind selling now would be ridiculous as I don't expect that all of them will magically go out of business although some very well may. The only single REIT I currently own is Realty Income bought during the financial crisis. Others are held within a CEF whose managers I am comfortable with. For now I wait patiently for them to stabilize and eventually start to rise before considering add-on buys. My magic 8-ball has been in for repairs for some time now so my timing, unlike others, is never perfect.

Sven

Taking a long term view helps to avoid to sell at the bottom. I own a small position in VNQ and no intention to sell. This sector will recover eventually when the infection rate stabilizes in the next quarter or two - assuming the hospital capacity is maintained and expanded to handle the current situation.

This week Wuhan, China tries to restart their business after a week of no new COVID-19 cases (we hope the # is accurate). It is a slow process as everyone are wearing masks and gloves while shopping and resume their daily life. Some factories are starting up. Think we are several months away from that.

VintageFreak

I have small investments in FundRise And RealtyMogul. This on the advice of some friends. They target modest returns not like a VGSIX or other RIET mutual fund which can yield outsized results because they invests in stocks.

Now the problem is they only update NAV once in 3 months / 6 months. I'm dreading surprise now that quarter is over, but not seeing any yet. I think I'm going to have to chill till July before I learn anything.

LewisBraham

Real estate should fall in this environment, especially commercial real estate and hotels.

Sven

That is one of the reason I have an allocation <1% from rebalancing in late 2019. The transportation sector is also heavily impacted with few traveling. Most will spend time in their home during this spring break.

Old_Joe

It will be interesting to watch for deterioration in San Francisco's tax base, as in recent years it has been so heavily dependent on ever-increasing amounts of office space, and ever-smaller (and closer together) living spaces. Methinks pride goeth before... etc.

Old_Joe

Speaking of things budgetary, I just found this article in this morning's Chron. Edited for brevity:

The staggering economic fallout from the COVID-19 pandemic is expected to create a budget deficit in San Francisco of from $1.1 billion to $1.7 billion over the next two fiscal years, city officials said Tuesday.

The grim projections accompanied an announcement that San Francisco’s budget-setting process would be delayed for two months to buy the city’s financial experts time to readjust their spending plans in light of stark revenue losses.

In December, the projected budget shortfall over the next two fiscal years was pegged at around $420 million. That gap between the city’s spending plans and available revenue has roughly quadrupled. Last year’s budget, the largest in the city’s history, was $12.3 billion.

“The coronavirus pandemic is an immediate threat to our public health, and we’re doing everything we can to slow its spread and save lives, but we know that it is also having a major impact on our economy and our city’s revenue,” Breed said in a statement.

The city has already sustained substantial losses brought on by the threat of the coronavirus and its attendant impact on the economy. The estimated losses reflect evaporated revenue the city otherwise would have expected to receive.

Over the next three months, city officials expect a shortfall of from $167 million to $288 million, driven primarily by losses in hotel and real estate-transfer taxes. The 2020-21 fiscal year is shaping up to be worse, according to the projections, with $330 million to $581 million in revenue drained away. Losses in the 2021-22 fiscal year are estimated at between $214 million and $382 million.

LewisBraham

Interesting fund I've followed for a while but haven't quite figured out yet is doing well in this environment:
https://morningstar.com/funds/xnas/gumpx/performance

Sven

What is the secret sauce? Wonder if the YTD of 11% is up to day?

VintageFreak

LewisBraham said:

Interesting fund I've followed for a while but haven't quite figured out yet is doing well in this environment:
https://morningstar.com/funds/xnas/gumpx/performance

There was a time when I thought similarly about RMBFX. Not just long-short but long-short in a specific sector. I thought I had found the b..b.

I have great powers. I can buy GUMPX and it will fall 50%. Everyone be nice to me.

LewisBraham

Without looking at its portfolio, my guess would be its long residential real estate and short lodging and commercial or some combination like that.....Yep, just checked its fact card. That seems to be the case: https://guggenheiminvestments.com/mutual-funds/fund/gumpx-market-neutral-real-estate

VintageFreak

Well, it describes itself as "long short market neutral" strategy. This seems like long-short to me, not market neutral. Wonder why name does not have word long-short.

LewisBraham

I think in this case it is neutral regarding its total net exposure to real estate so that it is about 90% long and 90% short, but it is not neutral with regard to its individual industry exposures within real estate. So some industries like residential will be overweight long and some like hotels will be overweight short but the combined amount for real estate will be close to zero.

VintageFreak

Sorry, how did you determine 90% long - 90% short??? I'm looking at holdings on 12/31/2019, and cannot gleam that out.

https://www.guggenheiminvestments.com/GuggenheimInvestments/media/mutual-funds/holdings/GUMAX-market-neutral-real-estate-2019-12-31.pdf

LewisBraham

Look at the "Sector Allocation (% of Net Assets)" part of the "Fact Card." I can't link directly to it for some reason, but the Fact card link is near the upper right of the page for the fund.

VintageFreak

See it now. Question is, is the manager smart, or just lucky. Managers hardly invested in the fund. M* does not flag the 90 / 90 either (which is a separate problem with M* itself because it constantly thinks it knows better)

LewisBraham

@VintageFreak For me that's too difficult to say at this juncture. Luck and skill are often hard to distinguish. One thing I think about it though is if one wants to make that specific play--long residential/short hotels--this one makes sense. In other words, I see the fund more as a tool for a specific take on the current market that an investor already has without assessing the manager's skill/luck level. Then again, if one invests, you are at the mercy of the manager's potentially changing viewpoint of those sectors. Still, you can tell by how it moves on a given day whether that trade is probably still on.

VintageFreak

Agree. I'm normally less sanguine about manager skill and I assume it is luck. Analysis => insider information for the most part. Most important factor IMO, I've said many times is WHEN you bought vs WHAT you bought.

The thing with this fund is managers either SUPER lucky, or SUPER smart since they had to get multiple things right.