“Weak consumer demand and a sluggish economy have been brutal for managers of commercial property. Vacancies are up in many cities as strip malls, office buildings and other property go unrented. The decline in commercial propertyhas turned real estate investment trusts, or REITs, into a dangerous place for investors. The Vanguard REIT exchange-traded fund (VNQ) is down 5.5% in price this year, even as the Standard & Poor’s 500 index has risen 9.5%. And the VNQ ETF is down a crushing 60% from its high in February 2007,” Matt Krantz Reports From The USA Today.
“Probably the easiest way to short commercial real estate would be to short one of the ETFs. There’s the Vanguard ETF mentioned above, but that’s just one. There are many more, including DJ Wilshire REIT (RWR), First Trust S&P REIT (FRI) and iShares’ Cohen & Steers Realty Majors (ICF). You can contact your brokerage firm and inquire which ETF, if any, is available for shorting,” Krantz Reports.
“A few words of caution. Remember that REITs pay out a vast majority of their earnings as periodic dividends. Many REIT ETFs are yielding more than 9% annually these days. That means you will be required to cough up those 9% dividends to the party from whom you borrowed the shares while you are shorting the ETF. That’s a pretty steep cost when you’re speculating,” Krantz Reports.
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