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madlibtweets's avatar

hard to turn a battleship. ever take a look at $AAT?

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madlibtweets's avatar

trust me i know - former VNO employee whose options expired worthless. AAT worth a look despite your very valid rule of thumb. DEI which is comparable trades w/ implied 9.5% cap on office vs 14.5% cap for AAT with arguably better/less-battleshipy portfolio.

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Paul Drake's avatar

Not before. Those diversified REITs have a terrible track record. Also not interested in a West-Coast focus.

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Dave S's avatar

Thanks for the write up, and I was happy to hear that you are feeling better. It does feel like a good time to add an office investment to the portfolio, so too bad about BXP. Too much history to overcome pretty much sums it up. Properties that can't be easily re-developed (bad location), debt from earlier halcyon days, or a mix of both. The search continues....

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Paul Drake's avatar

Strangely, it may be that among REITs the best way to play an office recovery is ONL.

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Dave S's avatar

I guess that makes sense. ONL is trying to deal with the issues head on. I will have to take another look....

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dmh555's avatar

Very interesting. The article starts out positive in terms of the market, then swings hard negative when the horrid reality of debt and interest rates gets injected into future cash flow projections.

It would be nice to have a simple projected interest costs versus current FAD for a list of REIT's. One graph would tell (me at least) which ones to discard out of hand and which ones to focus on.

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Paul Drake's avatar

I agree. Would be nice. But probably outside my scope. A poor man's substitute is to look at the total debt over twice the weighted average debt maturity as an approximation to annual debt due and compare that to CfO. To get at the interest rate story takes a fair bit more effort.

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Eric K's avatar

Thank you for the analysis, the growing interest cost chart is telling. It is also interesting to hear about the % of properties being converted to apartments in Boston. The WSJ had an article noting that Boston has the highest % of property tax revenue from office properties so hopefully that will help their tax base. Office conversions won't be an issue for suburban apartment REITs.

I was surprised to hear that Sam Zell got his start with residential redevelopment (assembling small lots and selling them to developers), and only got into office much later.

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Paul Drake's avatar

Did not know that about Zell. But my impression is that he made his big money out of the early-90s office collapse.

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Eric K's avatar

He has a very entertaining Autobiography where he narrated the audiobook:

https://www.amazon.com/Am-I-Being-Too-Subtle-audiobook/dp/B0725945CR

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