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Apollo Commercial Real Estate Finance, Inc. Message Board

  • RealBeauMec RealBeauMec May 22, 2003 11:08 AM Flag

    Ferdie:

    I notice that you also post thoughtful messages on the VNO board. I recognize that VNO and ARI are very different, at least in terms of geography, but I would be interested in your comments comparing the two. The market seems to place a much higher valuation level on ARI than on VNO. Thanks.

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    • First of all thanks for your thoughts.

      This rally in reits appears to be related to the sudden interest in high yielding stocks. I find it difficult to believe that anything happening within the office sector is driving this rally in office stocks. Translation. I think that the entire office sector is overvalued to its near term prospects.

      You can't compare ARI to VNO unless you want to pull out office and then compare apples to apples in terms of their specific office assets. VNO has other businesses including retail in midAtlantic region, The CHI Merchandise Center assets, Hotel PA, cold storage business which appears to be thawing a bit.

      Office to office VNO has its assets in the NYC midtown/downtown area and Wash DC/No VA region. VNO's long term bet is bigger governmt means consumption of their high in demand office space in Crystal City and related areas near metro DC. VNO is one of the very few reits (must add RA for reference purposes) that will experience POSITIVE ssnoi on rent rollovers. Translation, mark to market rents in their portfolio in 03-05 will be higher than leases expiring. Most other office reits will experience negative ssnoi in the 03-05 period as some "bubbled" rents are brought back down to earth.

      What this all means for the office reits is a struggle to breakeven on ffo over the 03-05 period ABSENT large demand for office rent which is built into all their assumptions and rightfully so given the sluggish and sloppy recovery.

      ARI is an LA/SD reit. They just sold off all their Inland Empire assets on MON except for this retail ppty called Tower Center a few miles from my house. ARI has decided to avoid the Inland Empire hyper growth and rightfully so to focus on their LA/SD assets. EOP also sold their Inland Empire assets a week ago (formerly SPK assets).

      I like ARI as part of my west coast play with KRC filling in the balance of that play. CA budget problems may hamper overall recovery but CA always comes back. VNO is a big play on the two best office markets in the nation if you believe NYC and DC are coming back.

      I would wait for lower prices though.

 
ARI
16.68+0.13(+0.79%)Jul 22 4:02 PMEDT