Invisible Hand Shakes City REITs
The New York Observer reports: For his part, Ashwin Deshmukh, fund manager of AD Capital, LP, has been shorting none other than Avalon Bay Communities. He’s particularly skeptical of Avalon’s ability to rent out two expensive luxury developments now under construction in Harlem and downtown Brooklyn.
“They really have these notions that rent will always rise,” Mr. Deshmukh said. “That’s just the way they’ve been buying their land, the way they’ve been financing their purchases. I think their assumptions are a little too forward-looking and they’ve been really unwilling to scale those back in the
recession.”
Mr. Piskorski agreed: “There’s a general economic slowdown. So there’s not an enormous lineup of companies that want to pay these high rents.”
There are, of course, dissenting opinions. Dan Fasulo, managing director at Real Capital Analytics and an investor in Avalon and Vornado, was more bullish.
“Avalon has very low leverage, their assets are located in the very best markets,” Mr. Fasulo said. “Will they take a hit on net operating income? Sure. But they do have a couple of significant developments coming online, which will add a significant amount of income. In New York City metro, there’s always a renter. So you won’t lose all your money. In other markets, there are no renters at any price. … I truly believe that the market has overreacted right now.”
But Mr. Fasulo has his doubts: “If a particular REIT needed to liquidate every asset today, who knows where the values would be. That’s the problem. You could actually make an argument that they’re undervalued.”
View the full article on The New York Observer: Invisible Hand Shakes City REITs
Posted by: Nina Turner