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CBRE Clarion Global Real Estate Message Board

  • jhk_17222 jhk_17222 Jul 14, 2008 12:57 PM Flag

    I own IGR & want to buy more.

    I own a bunch of IGR. At current prices it looks like a buy (long term investment). Can anyone give me a reason why the sell off will continue, and IGR will be a big loss from here? I see near near problems everywhere. Is there any reason to expect a huge loss? I would love to have a good reason not to buy more, if one exists.

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    • NEW YORK, July 14 (Reuters) - Billionaire investor George Soros said on Monday that the crisis over Fannie Mae (FNM.N: Quote, Profile, Research) and Freddie Mac (FRE.N: Quote, Profile, Research) will not be the last, and noted that the broader credit meltdown will impact an already slowing U.S. economy.

      The Treasury Department agreed to raise Fannie and Freddie's credit lines above the existing $2.25 billion apiece and buy shares to strengthen their finances, if needed. The Federal Reserve offered to let the mortgage finance companies borrow at the rate it charges banks for direct loans.

      The government's aggressive move on Sunday underscored problems plaguing the markets and the potential for them to send the U.S. economy into a severe recession.

      "This incident (with Fannie and Freddie) is not the last one," Soros told Reuters in a phone interview, adding the year-long global financial market turmoil represented "the most serious financial crisis of our lifetime."

      "Freddie Mac and Fannie Mae have a solvency crisis not a liquidity crisis," said Soros. "There's no problem in their borrowing. And in fact, insofar there is a problem, the Fed is there to provide the liquidity."

      That said, both Fannie and Freddie are "extremely leveraged," he said. "The deterioration in the housing market, the foreclosures are going to cause losses which exceed their equity," said Soros, whose famous bet against the British pound earned his Quantum Fund $1 billion in 1992.

      Fannie and Freddie shares rose as much as 30 percent in trading before the opening bell on Monday, but was unable to hold those gains throughout the session. At close, Fannie shares ended down 5.07 percent to settle at $9.73 while Freddie shares lost 8.26 percent to settle at $7.11.

      U.S. stock indexes also posted losses. The Dow Jones industrial average .DJI lost 0.41 percent to close at 11,055 points, while the Standard & Poor's 500 Index .SPX shed 0.90 percent to end 1,228. The Nasdaq Composite Index .IXIC slid 1.17 percent to 2,212.

      The government's drastic measures could keep the U.S. dollar under pressure, Soros added.

      "I think the dollar is vulnerable because the economy is going into a recession and the actions of the authorities do involve the accumulation of debt," he said. "There is various ratios by which the creditworthiness of a country's assurances are deteriorating."

      Soros said the credit crisis is having a growing effect on the U.S. economy, not just financial markets. "It is an idle dream to think that you could have this kind of crisis without the real economy being affected," he added.

      All told, Soros said Ben Bernanke, chairman of the Federal Reserve, is in a bind.

      "When he recognized the seriousness of the credit crisis, he acted very radically lowering interest rates and he used the tools that are at his disposal," Soros said.

      However, now the "armory" is depleted, he said adding that Bernanke can't lower interest rates because of the effect it would have on the dollar and he can't raise interest rates because of the looming recession.

      "Therefore, his options are limited -- he is boxed in," Soros said.

    • What concerns me is that we hae only written off 30% of our bad mortgages with 700B left to go. These adjustables will come do over the next aprox 4 years as most adjustables run 1 - 7 years and we are 1 year into the process. As more properties fail how can IGR's NAV not decline?

    • I don't see why they need to cut dividend. They had talked about changing the dividend to quarterly instead of monthly, but that has not happened. I was holding my breath before they announced the same dividend this month, which quite likely that they are not changing over to quarterly this quarter.

      I probably am missing something about cutting dividend. If the companies they are holding are collecting rent, and rent is not being cut (likely to be raised in view of inflation pressure), why should they cut dividend. Last year, they had the same .115 per month dividend, plus about $1 year end dividend plus less than a dollar capital gain distribution. So if they are holding pretty much the same companies, why should dividend be cut, given they have about $1 as a cushion for dividend yield?

      The NAV drop is due largely to the market price drop of the companies they are holding, and the share price drop accordingly. This is reasonable. The NAV already has their heavy 30+ percent leveraging taken into account. So the PPS drop reflects largely the valuation shift of the market in general.

      Assuming the 0.115 to continue till year end, and assuming no distribution whatsoever year end, we are talking about a yield of 15%.

      Problem is: the market is facing a confidence melt down, and REIT is in sync with the mortgage crisis of the day. But why is collecting rent has much to do with the mortgage crisis?

      Maybe someone can explain.

      • 2 Replies to jynhui1
      • Hi Jynhui1
        I remember you from the ACH board
        I’ve been watching IGR with interest but have not made a purchase
        I’m no real estate authority but will take a common sense go at your question

        As credit tightens apartment rental properties can’t be sold, inventories build up, and selling prices deteriorate
        New owners buy rentals cheaper with positive cash flow at lower rental rates
        Tenants migrate to buildings with lower rents
        Existing REITS experience rental pricing pressure
        reduce their rents to compete
        cash flow weakens maybe into the red
        I wouldn’t count on rents remaining high in a recession or worse
        Plus some renters are going to get their candles blown out creating un filled apartment issues

        Rents won’t go up in stagflation because businesses and people won’t be able to afford them
        Last stagflation 1970’s was painful gold was the big winner then
        Just my first best shot

      • Oops I meant a yield of 12%.

    • Fundamentally, I see nothing amiss with this CEF, but there's some speculation they might reduce the div. I bought a small position last month, intending to buy more...eventually. Interestingly, if you have an interactive chart service, COMPARE IGR to the Dow (DJIA) and you'll see a similar pattern, so I think the negativity is not stock specific but part of the general pessimism. It seems to be settling at 11.55, but the B/A size is at 600x1600 - probably lots of stop getting triggered. I'd wait a bit longer...

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