November 2, 2013

Is The Sucker’s Rally Over?

Readers suggested a topic on the housing markets turn. “Is this going to work ? ‘Starwood Property Trust Inc. (STWD) said it will spin off its single-family rental-home unit into a real estate investment trust headed by Waypoint Real Estate Group’s management division, which is being acquired in the deal. Shares of three publicly traded single-family rental REITs — American Homes 4 Rent, the largest publicly traded house REIT with 20,000 homes, American Residential Properties Inc. and Silver Bay Realty Trust Corp. — are trading below their initial prices.”

“‘Our bet here is that the public market is wrong,’ said Starwood Property Chairman Barry Sternlicht. ‘Long-term we can create in-scale, lasting assets in the public market that will pay a current yield higher than those of other REITs and will have home price appreciation at least equivalent to that in other commercial real estate.’”

“Waypoint has ‘techno wizards’ who have developed systems to value properties being considered for acquisition and manage them more efficiently than Starwood’s current set-up, which relies on outside companies, Sternlicht said. ‘I knew to go to Florida and I knew more or less where we wanted to go,’ Sternlicht said. Waypoint ‘can tell me what street I should buy in Orlando.’”

A reply, “Got ‘SUCKER’ written all over it. It’ll work for financial advisers who have the elderly and pension funds among their accounts. They’ll market it as a new avant-guard investment that can only go up. Then they’ll charge their transaction fees and wait for it to tank. It will be found that the Techno-Wizards made a minor miscalculation.”

One said, “Maybe, just maybe, the largest expansion of credit in history is running out of steam. ‘QE’ is soaking up dodgy debt, not creating a new credit expansion. It is to soften the blow. The blow is still going to land.”

“It looks like this year’s ‘obsolete commercial conversion to luxury rentals’ is a colossal flop in backwater NY. The old grain warehouse conversion was completed over the summer and opened for business with fanfare. $1,000/mo. units. My barber told me today that two units are rented out. There must be over 40 in the place. Going to be hard to match that to the business plan I’m guessing.”

“Is the sucker’s rally over?”

Bits Bucket for November 3, 2013

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