Subprime Debacle a Plus for Apartment REITS, Which Have Gained 12.29% This Year

By Anuradha Kher, Online News EditorWashington, D.C.–Residential REITS were the second best performing REITs in the first quarter of 2008, according to the National Association of Real Estate Investment Trusts (NAREIT). Apartment REITS, which make up for most of the Residential REITS (the balance is composed of manufactured housing REITs), were up 12.29 percent year-to-date.  Residential REITS returns increased 11.20 percent in the first quarter.  These figures compare with the Dow Jones Industrials which was down 7.55 percent to start the year. Apartment REITs’ total returns compare favorably with the those of the U.S. REIT market, which was nearly flat for the first quarter of 2008. (The FTSE NAREIT All REIT Index was down 0.42 percent, while the FTSE NAREIT Equity REIT Index was up 1.40 percent.) By contrast, other market benchmarks dove into negative territory to start the year. Other than the Dow Jones Industrials, the S&P 500 was down by 9.44 percent, the Russell 2000 dropped by 9.90 percent and the NASDAQ Composite was lower by 14.07 percent.REIT performance accelerated in March, as the FTSE NAREIT All REIT Index was up 3.88 percent in the month.“The sub prime mortgage crises did not have a direct negative impact on apartments but did in fact have an indirect positive impact,” says Brad Case, VP of research and industry information at NAREIT. “All those people who could not afford to buy homes had to start renting apartments.” This, Case believes is the reason for Apartment REITS doing better than most others.According to Case, the reason that REITs, in general, outperformed the stock markets is that at the end of last year, when stock markets started falling, people looked around and saw REITs as a viable option.“Fundamentals in the REIT industry are pretty strong and there is no real sign that they are likely to weaken anytime soon,” Case concludes.The current REIT slide began at the end of January 2007, and March 31 marked the 14-month point. From Jan. 31, 2007 to Feb. 29, 2008, the FTSE NAREIT All REIT Index was down 27 percent. It has since recovered so that the cumulative decline since the peak is 24.1 percent.