No. of Recommendations: 6
From a column by John Authers in Bloomberg:
And judging by the latest share price moves, commercial real estate is now driving at least as much concern as the banking sector.
Two charts will suffice. First, this is the market cap of Vornado Realty Trust, one of the biggest developers of office property in New York City. After dropping 13% in five days, it's now worth barely any more than it was at the turn of the millennium.
Bloomberg's index of office property real estate investment trusts (REITs) looks similarly dire. It's still above its worst level from the GFC, but it's halved in the last 12 months to a point it first reached in September of 1996. https://www.bloomberg.com/opinion/articles/2023-03...Bruce Flatt frequently makes the claim that BN's office properties are the best and have high occupancy and they can raise rents. But there is a big disconnect between what Mr. Market and management believe they are worth. At current sum of the parts valuation of BN, Mr. Market thinks that Brookfield Properties has zero or negative value.
Management could continue to make occasional sales to prove properties are worth more than IFRS value. But I doubt that will change minds very much. When the Fed is done raising rates, inflation is much lower than now and more people are going back to workplaces, commercial properties may get the valuation that Flatt believes it is worth.
Until then, management can launch big share buybacks. Investors will just have to be patient and trust management to provide excess long term returns, as they have in the past. If it is any consolation the whole asset management sector has been severely hit by Fed tightening and drop in equity and bond markets. It is hard to compete against 13 week T Bills earning 5%, even with inflation above 6%.
