Morningstar Advisor - August/September 2011 - (Page 32)

Sector Rap A REIT Recovery, With a Catch By Philip Guziec Analysts say rosy assumptions are already baked into stock prices. Everybody knows about the problems facing residential real estate, but what’s going on in commercial real estate? I sat down with real estate analysts Todd Lukasik, Jason Ren, and Philip J. Martin to get the scoop. Philip Guziec: How was commercial real estate affected in the recession, and how has it fared in the wake of the recession? Philip J. Martin: This downturn in real estate wasn’t really supply- or oversupply-driven; it was more financial-crisis-driven. This should allow underlying commercial real estate cash flows and valuations to recover more quickly coming out of this downcycle. It’s much different than coming out of the late 1980s or early 1990s, when we saw significant oversupply in commercial real estate, largely driven by a lack of lending discipline throughout the 1980s. The result was oversupply and an associated commercial real estate recession. The commercial real estate sector required at least five years to recover, and it wasn’t until the mid- to late-1990s that underlying commercial real estate operations, rents, and valuations began to recover. That would compare to residential real estate today, where we arguably have a one- to three-year oversupply of residential real estate. Guziec: You said that we don’t have the kind of oversupply that we had in the 1980s, but we did have a bit of a banking cycle and some pretty loose lending practices. Did you see some oversupply in commercial real estate? Martin: We didn’t really see significant overdevelopment heading into this. Any 32 Morningstar Advisor August/September 2011

Table of Contents for the Digital Edition of Morningstar Advisor - August/September 2011

Morningstar Advisor - August/September 2011
Letter From the Editor
Simplicity and Design Matter
Do You Use ETFs Strategically or Tactically?
The Institutional Way
How to Analyze an ETF
Eyeing ETFs’ Next Chapter
Small-Cap/Large-Cap Flip-Flop?
Four Picks for the Present
Investment Briefs
Morningstar Investment Conference
Pitfalls of Peer Groups
A REIT Recovery, With a Catch
Turning Fund Distribution on Its Head
Here Come ETF Managed Portfolios
Circle These Picks Amid the Crop of New ETFs
ETF Analyst Favorites
Beware, the Accidental Portfolio Manager
It’s the Destination, Not the Vehicle
New Growth, Rooted in Experience
Better Ways to Look at ETFs
How to Better Manage Your Clients’ Future(s)
More Bargain Than Bubble
Cheap, Local, and On a Roll
Mutual Fund Analyst Picks
50 Most Popular ETFs
Undervalued Stocks With Wide Moats
First-Quarter Assets Hit an All-Time High
You Say You Want a Revolution?

Morningstar Advisor - August/September 2011