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Apollo Commercial Real Estate Finance, Inc. Message Board

  • smartermoney smartermoney Jan 16, 2003 6:32 AM Flag

    rational investing in real estate

    a rational investor recognizes that in a soft economic climate he will experience some degradation of rental income; however, this does not really diminish the long-term value of his properties. when a stock like ARI sells at a material disconnect from NAV it is only because wall street has never been able to understand real estate investing.

    this is the greatest thing in the world as it creates massive buying opportunities for the investor who recognizes the difference between stock prices and the value of the underlying assets

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    • That is too much of a generality inasmuch as it applies to the entire reit sector. ARI has experienced significant occupancy losses in its LA West side portfolio which is 39% of NOI. They have lost 5 points of occupancy over the last year. In addition, ARI has lost 5 points of occupancy in its San Diego portfolio.

      Now comparing KRC's losses in LA they have lost very little; same in San Diego. KRC has issues with Perigrine (now fully understood and reflected) and Boeing (still pending).

      Given SoCal's more diverse economy I must tell you that ARI is selling down for a reason. Given that SoCal's economy has very little tech component there is clearly something amiss in the West side portfolio. It shouldn't be down as much as it is. Other diversified markets like Philly burbs, NJ in parts where telecom hasn't reaked havok. New York burbs including Westchester have not shown the weakness that ARI has experienced in its most lucrative submarket (west LA).

      I think ARI goes lower. They have a lot of renewals in LA West in 03/04 at very high rents to today's market and I think they are going to eat a lot of poo this year.

      • 2 Replies to ferdiefor
      • Are you still in ARI or did you sell it? Seems like REITs are mostly taking a general hit.

      • A couple of questions why do you feel the west side portfolio is in so much trouble, and where do you get the 5% decline in SD?

        I looked at the last 10Q and they provide a total occup. loss of 2.5 % ARI does have a lease expireation rate of 16.7% for 2003 which does seem high, they will in all likelyhood expect lower rent.

        Kilroys LA and Orange county ofice occup. rates are both under 90% and they also have 14.5% expireing in 2003. So is Kilroy doing so much better??

        Also to assert that Philly and NYC are not as weak as ARI markets is somewhat contradicted by this statement from the exec of CLI.

        Hersh predicts the market will remain difficult through 2003 and early 2004. He said troubles in the financial services and telecom industries have been partly offset by increased real estate needs in the pharmaceutical, biotechnology and life sciences sectors.

        "These factors have contributed to a decrease in the occupancy of our portfolio from 92.2% as of December 31, 2001 to 89.7% as of September 30, 2002"

16.20Aug 26 4:01 PMEDT