A Goldman Sachs analyst upgraded his view of real estate investment trusts Thursday, predicting a bottom in industry fundamentals in the next year to 18 months.
Jonathan Habermann lifted his rating on the industry to "Neutral" from "Cautious." He said there will be more opportunities for REIT acquisitions over time, and he expects interest rates to remain low through 2011 and debt costs have come down.
Commercial real estate has historically bottomed 12 to 18 months after the end of U.S. recessions, Habermann said.
Lower costs for issuing debt should make it easier for the stronger REITs to raise money in order to buy up assets, he said.
However, he cautioned that REITs still need to substantially reduce their current debt loads _ he says by about $40 to $60 billion _ over the next several years. Moreover a weak broader recovery, with the economy growing between 2 to 3 percent in 2010, may mute the rebound for commercial real estate.
He upgraded senior housing operator Brookdale Senior Living Inc. to "Buy" from "Neutral," apartment REIT AvalonBay Communities Inc. to "Neutral" from "Sell" and mall operator General Growth Properties Inc., which is under bankruptcy protection, to "Neutral" from "Sell."
He downgraded shopping center REIT Kimco Realty Corp. to "Neutral" from "Buy," however, saying its strategy for future growth was murky.
In afternoon trading, shares of Brookdale rose 74 cents, or 4.7 percent, to $16.55. AvalonBay gained $1.36 to $76.13. General Growth added 85 cents, or 12.2 percent, to $7.80. General Growth shares earlier hit a new year high of $8.03.
Kimco stock traded up 32 cents, or 2.5 percent, at $13.12.