your assessment of cmbs market please.
and why less risk then rmbs market.
off course u know by now y i prefer cmbs but would enjoy reading your take.
also y like me u feel nro best closed end fund to be able to maximize our gains
I believe that RMBS carries much more risk than CMBS since RMBS faces a ton of collateral damage from the massive oversupply of residential properties. I’m looking for the residential property market to stabilize by 2014.
Current government efforts to prop up this market will likely do nothing but prolong the decline by delaying equilibrium pricing. The U.S. mortgage market is about $13 Trillion in size. Anyone who tries to convince you that a $300 billion (drop in the bucket) real estate bailout plan will stop the biggest residential housing bust in American history is probably smoking too many “homemade cigarettes” :) ARM resets are scheduled to drop significantly by the end of October (coincidently the same month the bailout plan takes effect), which will give everyone the false notion of a housing turnaround for a couple of months.
However, the bigger problem is the option ARM implosion scheduled to begin in 2009. This should make subprime look like a picnic. These hideous loans (growing balances) combined with falling home prices will likely cause a massive re-acceleration in foreclosures. With 19 million vacant homes in the U.S. and counting, guess how many we will have when this implosion hits next year? When you add ever tightening mortgage loan standards (possible 30% to 40% down payment requirement in the hardest hit regions) and rising rates due to accelerating inflation, you are basically facing significant RMBS collateral deterioration as tons of REO properties contribute to the “shadow rental inventory”. Look for investors (individual & institutional) and the government (city, state, & federal) to respond to this situation by purchasing these properties for pennies on the dollar and then turning them into a massive supply of affordable housing and rental units (falling home prices and rents). This can be good for commercial properties in the long run since affordable housing gives consumers much more disposable income for shopping purposes as the largest household expense is reduced.
Governments are welcome to try, but history proves they have NEVER been able to repeal the laws of supply and demand - residential housing is still toast for the foreseeable future ;)
Just a regular 21-year veteran investor. Situation in CMBS today reminds me a little of the early 90’s after the junk bond market crashed and everyone was scared to buy 16% high yield bond funds. I couldn’t get enough of them and enjoyed a nice 32% gain in less than a year. Hope NRO enjoys a similar experience, but keeps the high yielding securities a lot longer to support high dividend payouts until strong growth returns to the equity REITs ;)
in addition while reading barrons today i came across this:
page36 fund of information.
article states among other things that a very conservative fund manager has begun buying mortgage backed securities but only those issued before 2005,when,he argues,lending standards were higher.
hes also pursuingdeals with private originators who offer more transparency.
just a blip but worth noting.
notice it doesnt mention commercial or residential.
im sure nro management just as knowledgeable.
this was the first mention of this paper that i have seen in barrons in a ion.
guess it portends the future.
im still comfy buying here and i still believe we are early
as usual a great note.
u r truley a very savay real estate investor.
i for one agree with u
further as an investor who prerred the actual brick and mortar to the paper after reading whatever i can on the subject i realize that the distressed paper debt on the properties are the way to go
naturally all the above imho.
this will be especially true in a low inflation enironment.
the reason i prefer nro to myself in looking for this paper is the minus nav plus their expertise.
i realize yield will drop ,it has to ,however the cap gain will rise signifcantly.
with luck we maybe able to get one great year here or maybe two until street wakes up and starts to significantly purchase this paper.
i also prefer the commercial arena to residential.
especially now since commercial lagged residential and commercial rolling over now.
imho better bargains in commercial paper now than residential.
keep your posts coming extremly informative.
by the way r u in realty now as a professional or just a savay investor.
im sure like me u have been doing this for awhile.
I chose NRO over VNQ for the following reasons:
1) Prefer a steady monthly dividend of more than 5.25% to a quarterly erratic one.
2) NRO has significant exposure to the CMBS sector and VNQ doesn’t.
3) Wanted an ETF that employs leverage to enhance long-term returns.
Among leveraged REIT ETFs, NRO’s expense ratio is one of the lowest. The 4/30/08 expense ratio you are quoting is temporarily elevated IMO by the merger of NRO and NRI at that time. If you read the latest NRO report, you will find that the expense ratio is scheduled to drop as management fees decline. This should make NRO the lowest cost leveraged REIT ETF over the next three years.
“...Management has contractually agreed to waive a portion of the management fees it is entitled to receive from the Fund at the following annual rates:
October 31, % of Average Daily Managed Assets
At risk of dating myself, I went to college from 1982-- 1986. I remember having conversations in my finance classes about the fact most closed ended mutual funds sell at a discount. So whatever the cause is it has been happening to these types of funds for a while.
The general thinking as to why was as follows:
1) It is hard to value these funds during the day so people tend to want to buy low not high. Go to etfcoonect and look at the nav vs price chart of SZO. It is an inverse oil ETN, but its value is a simple value vs oil. It doesn't have the same spread. It is easy to know if you would be over or under paying so people don't do it. But this fund it is harder to know. You would need to know the price real time of a large number of stocks.
2) At least one of my prof said you could use the discount/premium as a leading indicatior. My experience doesn't seem to bear that out.
But because so many of them sell at a discount I almost never buy at a premium as it appears many close ended funds have a tendency to sell at a discount.
But one would expect someone to buy the fund and sell the holdings and capture the spread. But it doesn't happen. Maybe not enough money.