US Real Estate – Investors Broadly Positive, Yet Some Hedge Funds Skeptical

On the back of the US mid-term election results, the announcement by the Federal Reserve that it will buy $600 billion in Treasury securities through to June, and the commentary following government owned Freddie Mac’s results earlier this week, we look at how investors are positioning themselves in US real estate companies.

The commercial real estate market has so far avoided the meltdown that many commentators were predicting. However, the flow of retail properties has been distorted as mortgage companies face scrutiny over the way homes are repossessed, leading to lenders temporarily suspending the sale of foreclosed homes as they review procedures amid ongoing investigations.

Stocks covered include: CB Richard Ellis Group Inc (NYSE:CBG), Grubb and Ellis Co (NYSE:GBE), St. Joe (NYSE:JOE) and Simon Property Group (NYSE:SPG).

Data Explorers’ analysis of North America real estate highlights that overall sentiment is neutral, although there is a slight skew towards the positive. An average of short interest across the sector currently stands at 4% of total shares outstanding on loan.

CB Richard Ellis Group Inc (NYSE:CBG), a global commercial real estate services company, tops the list of positive investor sentiment over the past week. The company has published research which acknowledged that commercial real estate lags the rest of the economy in terms recovery, which it believes is a typical phenomena coming out of recessions.

Richard Ellis could be viewed as a rough proxy for overall sentiment towards global commercial real estate companies given its diversified portfolio. Short interest is currently at a low of 2% in comparison to 8% a year ago. The stock has been subject to gradual short covering over the year, whilst institutional funds who lend have increased ownership from 60 to 78 million shares.

Due to reported third-quarter earnings on 9th November, Grubb and Ellis Co (NYSE:GBE) is a relatively small cap commercial real estate company which has downgraded its outlook. The company has been subject to negative investor sentiment over the past month. Funds who lends have been decreasing their holdings from 7.3 million to less than 6 million shares since August. Short interest has increased to 6.2% of the total shares outstanding on loan, up 8% over the last month.

Institutional investors have expressed negative sentiment towards St. Joe (NYSE:JOE), a real estate development company with a substantial residential presence. The shares have fallen over 20% in the last month and short interest jumped from 18% to 25% over the same period. Some short covering has taken place in the last week, which has reduced short interest to 23% total shares outstanding on loan. It is worth noting that St. Joes is heavily utilized, with 75% of the lendable supply currently out on loan. This is considerably higher than the sector average of 16%.

Finally, we turn to the giant of this sector, Simon Property Group (NYSE:SPG) which holds a market cap of $30 billion. Short covering has halved short interest from 6% to 2.7% over the year as the share price recently hit the $100 milestone. Institutional ownership has decreased slightly over the year, but has been constant at 96 million shares over the third quarter.