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Strong demand for space resulted in rising rents, which jumped a surprising 4.2% during the fourth quarter. "The abrupt change suggests that rents may be ready to turn higher in 2005 after remaining relatively flat for seven quarters," said Ross Moore, Vice President and Director of Research for Colliers USA. "We comfortably exceeded our forecast of 150 million square feet of absorption, and the market has responded," he added. The economy is showing signs of slowing marginally, but still has considerable momentum. This will continue to translate into strong demand for warehouse space during 2005. Very few markets are anticipating a slowdown in the first quarter, with most areas forecasting demand to stay at current levels or higher. Strong absorption pushed the national vacancy rate down to 9.4% at the end of 2004, compared to 9.7% at the end of the third quarter 2004 and 10.2% at year end 2003. Absorption during the fourth quarter of 2004 was 56.8 million square feet, the same amount that was absorbed during the entire year in 2003. Construction of warehouse space continues to increase. New construction in the fourth quarter totaled 35.2 million square feet, part of 120.0 million square feet delivered during the entire year. This is a significant increase over 2003, when 95.0 million square feet of new construction was added to the market.
After a 15-year hiatus, however, Japanese capital is re-entering the United States market, but much more quietly and cautiously this time. "They have begun to test the waters again," said Bill Collins, who runs the capital markets group at Cassidy & Pinkard, a real estate services firm in Washington. For the first time in years, for example, Mitsui Fudosan, Japan's largest real estate company and the owner since 1986 of 1251 Avenue of the Americas, the former Exxon Building, is searching for other buildings to buy in the two most competitive markets in the United States, said Michael W. McMahon, a senior vice president. "We're targeting Midtown Manhattan and Washington, D.C.," he said. A survey released this month by the Association of Foreign Investors in Real Estate, a trade group, found that most of its members expect the Japanese to lag only Germans and Australians as the most active foreign buyers of United States property. "We have seen more activity from Japan in the past six months than we have in the past six years," said James A. Fetgatter, the trade group's chief executive. "I have Nikkei Shimbun coming in to talk to me today," he said, referring to the Japanese newspaper. "I've never met anyone from Nikkei Shimbun before." So far, much of this Japanese money has been used to buy shares in publicly traded companies, rather than individual buildings. In October 2003, it became legal in Japan to sell portfolios of shares in real estate investment trusts, allowing special funds to be marketed specifically to Japanese investors. Some of these funds buy shares only in REIT's based in the United States, which largely own property in this country, while other funds own a portfolio of REIT shares from various countries, including the United States. Since these funds were first sold, investment in them has steadily increased, reaching $4.6 billion last month. Although this sum is just a fraction of the total $300 billion invested in United States REIT's, real estate specialists say it is significant nonetheless. "It's not a huge number, but it's an encouraging number," said Michael R. Grupe, a senior vice president of the National Association of Real Estate Investment Trusts, a trade group. "It's been a fairly even growth path." Takayuki Kiura, the managing director of a new Tokyo office that Heitman, a Chicago-based company that manages capital on behalf of pension funds and other investors, opened just this month, estimates that two-thirds of the $4.6 billion is invested in United States REIT's, with the rest in REIT's in other countries. A treaty that went into effect on July 1 gives Japanese investors in United States REIT's the same tax status as American investors, enhancing the appeal of these funds, said Tony Edwards, the general counsel of the REIT trade group. Heitman is just one of several American companies that have teamed with Japanese financial institutions to create REIT funds that are marketed to investors in Japan. Heitman manages about $270 million worth of assets for three funds with Nomura Asset Management and a fourth with Sumitomo Trust Bank. AEW Capital Management, a Boston company whose clients are mainly institutions, has a similar relationship with Nissay. And LaSalle Investment Management, part of the real estate services company Jones Lang LaSalle, manages a global REIT fund for Nikko that is aimed at Japanese investors. The American companies say they are focusing on Japan because it has an aging population with a long tradition of accumulating savings and a need for current income that cannot be met by low-yielding government bonds. REIT's, which pool money from investors to buy property, are required to return 90 percent of their taxable income to their investors, which means that they usually offer higher yields than most other types of securities. The Japanese have their own real estate investment trusts, but the industry is still relatively new, with only about 15 so-called J-REIT's in existence. The average dividend is about 3.5 to 4 percent, compared with an average of 6 percent for American companies. "Besides that," Jeroen Beimer, an analyst for Global Property Research, a company in Amsterdam that provides data for financial institutions, wrote in an e-mail message, "J-REIT's primarily invest in Tokyo offices and to a lesser extent retail, so the spread of the portfolio in sector and geographical terms is limited. Another reason is that the underlying Japanese real estate market has faced tough times in the past 10 years, with declining prices and rising vacancy rates. The confidence in the market is therefore not that high." Mark A. Grinis, a partner in Ernst & Young's real estate practice who recently moved back to New York after spending seven years in Tokyo, said that given their experiences of the past decade, Japanese investors would logically find more transparent and liquid investments in real estate attractive. "You have a menu of options today that you didn't have in the late 1980's," he said. The new focus on Japan is part of a growing globalization of the REIT industry. Mr. Grupe of the REIT trade group said that publicly traded real estate companies can be found in about 20 countries. "They come in all different forms," he said. "Many of these countries tend to use the moniker 'REIT' to refer to that particular sector, but not all." This trend is providing investors with a way to further diversify their real estate portfolios, said Michael J. Acton, the director of research for AEW Capital Management. "Every city has its own cycles," he said. Although the downturn in the United States real estate cycle in the early 1990's caused painful losses for many Japanese investors and banks, the Japanese continue to have significant holdings in this country. Mitsubishi Estate, for example, lost control of Rockefeller Center itself, but the company, through its wholly owned Rockefeller Group, still owns 7.7 million square feet of space there, including the Time & Life Building at 1271 Avenue of the Americas. Early last year, the Association of Foreign Investors in Real Estate reported that Japan was the leading source of foreign investment in American real estate, with a 26 percent share, the latest figure available. But Mr. Fetgatter cautioned that "any statistics about foreign investment are always sketchy" since the countries do their own reporting. Sumitomo Life Realty (N.Y.) Inc., a subsidiary of the large Japanese insurance company (and a separate company from Sumitomo Trust), has a relatively new business strategy for geographically diversifying its United States portfolio in the hope of lowering its risk, said Norio Morimoto, the company president. Sumitomo Life Realty formed a partnership with Hines, the Houston-based real estate company, to invest in prime office buildings. The Japanese company subsequently sold four buildings to the fund: 499 Park Avenue, 425 Lexington Avenue and 600 Lexington Avenue in Midtown Manhattan and 1200 19th Street in Washington. About one-quarter of the investors in the Hines-Sumisei U.S. Core Office Fund, which now owns four more buildings in Houston and San Francisco, are Japanese, said Charles N. Hazen, the president. But other Japanese real estate companies are once again seeking to compete for buildings directly. Mr. Collins said that starting about six months ago, a "handful of seasoned real estate companies" began looking for buildings priced around $100 million. Woody Heller, who heads the capital transactions group at Studley, the brokerage firm, said: "We haven't seen any high-profile purchase, but we're all beginning to have conversations with them. Whether they will be competitive is unclear in my mind." Mr. McMahon, the Mitsui Fudosan America executive, said his company was not looking for trophy buildings but rather for those that have potential for improvement. He acknowledged that bidding for properties in Washington and Midtown Manhattan, is challenging. "We don't know at this point whether we're going to be successful," he said. In the last decade, Japanese investors have become more sophisticated about market cycles, Mr. Morimoto said. "We learned a lot from the experience," he said. "The best strategy is to diversify the location and timing of the investment, and by doing that we could have diversified our risk."
Washington, D.C.; Boston; Fort Lauderdale, Fla.; and New York City ranked sixth, seventh, eighth and ninth, respectively. Markets in the South and Midwest mostly ranked toward the bottom of the list, largely because they continued to struggle with supply issues, a weak labor market or both. These findings are included in Marcus & Millichap Real Estate Investment Brokerage Co.'s 2005 National Apartment Index. The Encino, Calif., brokerage firm's research division ranks markets based on a series of 12-month forward-looking supply and demand indicators. Markets are ranked based on their cumulative weighted-average scores for a number of things, including forecast employment growth, vacancy, construction, housing affordability and rent growth. Southern California's showing in the ranking isn't surprising, as apartment markets there held up well during the economic downturn. The region had high home prices, which tend to lead to strong renting activity, as many people in those areas find buying out of reach. The markets also have strong demographic trends and constraints on new construction, according to the index. Washington, D.C., also has shared many of these traits in recent years. But other markets had more significant moves. New York City, for example, rose to ninth place from 12th largely because of its exorbitant housing prices, which the index says should elevate rental demand and allow for strong rental growth. Seattle made the biggest positive move, rising eight places to 18. Tim Campbell, a broker with Pinnacle Management AMS LLC in Seattle, says that city's rental market is poised for a recovery, as hiring is picking up in the burgeoning biotech industry and as Microsoft Corp. and Boeing Co., which have long had presences there, have started hiring again. Miami, however, slipped 10 spots, the biggest drop, in part because of competition from affordable condos, which pushes people to buy rather than rent. Lyle Chariff, president of brokerage firm Chariff Realty Group in Miami, says investors should expect to lose money on apartment properties for the next year or two, with the hope they will make it back as the housing market slows. "They'll be taking a loss on the properties now but they'll be gaining appreciation later," he says.
The Unconventional Wisdom REITs are expensive - but they're supposed to be. The price-to-earnings ratio of the S&P 500 is 16 compared to REITs' multiple of 19 times "adjusted funds from operations (a refined measure of real estate profitability that adds some, but not all, depreciation back to net income). Corporate bonds with Baa ratings pay 6.3% interest, while REITs pay a 5.1% average dividend yield. These are historic highs. But heck, real estate is relatively low-risk, so REIT investors should expect a lower reward. Also, REITs are trading at a 13% premium to their underlying net asset values - above the 7% average premium since 1993, but well below the 20%-plus peaks of 1993 and 1997. The Misplaced Assumption Investors who like income should avoid "high-flying" REITs because they are too risky and their dividend yields are too low. C'mon! By the same logic, you should put none of your nest egg in Treasury bonds and opt for junk-rated issues instead. If you're buying REITs for income, keep two things in mind: coverage and growth potential. Most of those high-yield REITs only barely succeed at covering dividend payments. If they pay out more than 90% of their funds from operations, there's not enough capital left for fixup at their properties, or as a buffer during a slump. Meanwhile, the REITs with the lowest yields are frequently in a position to hike their dividends in a year or two. The Bold Prediction The economy is improving and so are real estate fundamentals. The problem: rising interest rates and the falling dollar. If the rise is modest, it will only hamper REITs a bit, not eviscerate them. And it might even help apartment REITs a little, since higher mortgage rates might stop them from losing tenants to the housing market.
"That combined with the fact that on average the group is trading at 128 percent of an inflated net asset value makes us even more bearish than we have been. If you don't sell now, when do you sell?," he wrote. Low long-term interest rates and the collapse of the credit spreads have been behind the recent REIT rave, with the Morgan Stanley REIT Index up 31.5 percent in 2004. Shulman said the REIT boom would begin to unwind if 10-year U.S. Treasury yields rise to to 5 percent-plus and a credit spread increase modestly making borrowing more expensive.
Back-to-back 30%-plus gains may not be unprecedented, but they don't come around too often, especially in an asset class like REITs, which are more income- than growth-based. Despite the past two profitable years, most analysts and fund managers expect the era of outsized gains to end in 2005 with REIT returns finishing in the 9% to 11% range. They also say results could be far worse if interest rates spike for the wrong reasons, like a crippled U.S. currency as opposed to steady economic growth. "REIT performance depends on the economy now," says Samuel Lieber, portfolio manager for the $250 million Alpine U.S. Real Estate Equity fund. "We've gone beyond balancing out the inefficiencies of the late 1990s." REIT shares were ignored during the tech bubble as investors chased after growth-oriented companies more interested in reinvesting their cash than paying out dividends. Following the bubble's collapse, however, investors about-faced and poured their investment dollars into steady, income-producing assets like REITs. That cash spigot has yet to be turned off despite the run-up in prices, says Lieber, who expects REITs to return 10% in the coming year, half of that coming from dividends. According to Lieber, huge institutional dollars have been committed and not deployed into REITs and the "weight of that money should sustain prices and valuations in the coming year." Furthermore, that stream of institutional money is bearing down on a relatively narrow group of stocks, which only serves to support REIT share prices. According to the National Association of Real Estate Investment Trusts, or NAREIT, the entire market cap for the roughly 150 publicly traded equity REITs is around $260 billion, or, in other words, 10% less than the market cap for Dow component Microsoft. Like most other REIT fund managers, Lieber says the major caveat to his forecast is a spike in interest rates. When rates shot up nearly a full percentage point last spring, REITs sank 18% in a span of only a few weeks. Many fund managers blamed that swoon on institutional investors unwinding the so-called carry trade, a bet that involves borrowing short-term money at low interest rates and using it to purchase longer-term securities like REITs. Still, the incident attuned many investors to the dangers of rates rising too quickly. "Generally rising rates are priced into the marketplace, but significant short-term moves can disrupt prices," says Michael Torres, portfolio manager for the $45 million Adelante U.S. Real Estate fund. "People panicked unnecessarily last April." As long as the Fed continues with its "measured" rate hike strategy and the move up is orderly, fund managers say REITs should not be hurt by rising rates. In fact, most real estate fund managers would welcome higher rates provided they are a function of an expanding economy that will allow landlords to raise rents. Higher lending costs also makes renting preferable to home-buying for many people, thus increasing the value of rental properties owned by REITs. Of course, all this focus on rates should not supercede the three primary rules of real estate investing: location, location, location. Fund managers are especially bullish on REITs holding properties in New York and Washington, a pair of cities with growing economies and high barriers to entry. Joe Rodriguez, portfolio manager of the $1 billion AIM Real Estate fund, chooses New York-based S.L. Green as his top pick due to its plethora of well-situated, second-tier buildings. And Adelante's Torres names Boston Properties as his favorite choice due to the company's significant stakes in both the Big Apple and capital. Meanwhile, Alpine's Lieber says a new signature building on Manhattan's Lexington Avenue will help spur earnings for bankrupt retailer-turned-REIT Alexander's, as well as Vornado Realty Trust, which controls about one-third of Alexander's shares. On the earnings front, AIM's Rodriguez says that for all the attention being paid to REITs over the past five years, earnings growth has actually been "anemic" over the period. He expects that to change this year now that the industry's fundamentals have caught up with the rapid price appreciation. "Real estate is a lagging industry," says Rodriguez. "Multiple expansion has been driving prices higher, but when earnings start increasing investors might see those multiples contract." Rodriguez is predicting high-single-digit returns for REITs in 2005 and warns investors that they best be prepared for a scenario where the best they can do is clip coupons. Speaking of those all-important coupon payments, the average dividend yield on an equity REIT is 4.6%, according to NAREIT, while Morningstar says the average yield from a REIT fund is around 2.9%. The approximate difference between the two is the average 1.6% in fund expenses, according to Morningstar REIT fund analyst Dan McNeela. Like the fund managers themselves, McNeela does not see REIT funds stretching their 30%-per-year winning streak through 2005. He expects most fund managers would be satisfied with returns in the 7% range this year, but readily admits that he shortchanged the group last year at this time and was proven wrong. "My expectations were for modest returns in 2004 and we were proved wrong, so you never know," says McNeela. "But the source driving these returns is more demand for the stocks than fundamentals, which makes me even more suspicious."
NAR President Al Mansell, said investment returns are showing a positive performance in all of the commercial real estate sectors. "One sign of a healthy commercial market is that many of the largest pension funds have started to increase the share of their investment in this asset class," he said. "That underscores the importance of real estate in a diversified portfolio." The NAR forecast for four major commercial sectors is based on analysis of data in 57 metro areas tracked, including the office, retail, industrial and multifamily markets. Net absorption of office space, which includes leasing of new space coming on the market as well as space in existing properties, is performing exceptionally well. With a decline in sublet and unused space, net absorption will nearly triple to 55.9 million square feet this year in contrast with only 20 million in 2003. An additional 50.4 million square feet are expected to be absorbed in 2005, with 59.7 million in 2006. Office vacancy rates in the 57 markets tracked are likely to decline to 15.3 percent in 2005 and 14.1 percent in 2006 from 16.2 percent this year. In the retail sector, net absorption in the 57 metro areas tracked is estimated at 27.5 million square feet in 2004, more than double the 11.8 million last year; 33.6 million square feet are forecast for 2005 with 27 million in 2006. The most popular retail properties for investors are centers anchored by a grocery store. The average vacancy rate for retail space should be 7.5 percent this year, down from 8.1 percent in 2003. Vacancies are projected at 6.8 percent next year and 7.5 percent in 2006. The industrial market varies greatly around the country but is experiencing a level of net absorption not seen since 2000, much of it build-to-suit, forecast at 144.4 million square feet in 2004 in the 57 markets tracked, up greatly from only 16.5 million last year. Net absorption should be at 110.5 million square feet next year and 132.1 million in 2006. The national vacancy rate is expected to decline to 11 percent this year from 11.6 percent in 2003, with projections for 11.1 percent next year and 10.8 percent in 2006. The apartment rental market - multifamily housing - should experience a net absorption of 243,400 units in the 57 markets tracked this year, up from 159,400 in 2003. Net absorption is projected at 226,700 in 2005 and 225,900 in 2006. The average vacancy rate should rise to 6.8 percent this year from 6.4 percent in 2003.
In the beginning, pioneer category killers such as Toys R Us and Home Depot located in undeveloped or underdeveloped areas with plenty of open space for parking. The store interiors were no-frill zones in cookie-cutter, single-floor buildings. In exchange for Spartan surroundings, these retailers offered time-starved shoppers low prices and convenience. The strategy was simple: Pile it high and sell it cheap. As they fight to ensure their own survival in a world of retail Darwinism, category killers have gone through their own evolution. What is the future of category killers? Where will they turn up next? And how will they influence — and be influenced by — the changes in America's consumer culture? In recent years, the best category killers have become more consumer-centric, adjusting their look and feel to sell. Even the most bare-bones big-box store has had to upgrade signage, product presentation and even (gasp!) customer service. Most have added related product lines, such as Home Depot's move into home appliances. As David Brooks points out in his book "On Paradise Drive: How We Live Now (and Always Have) in the Future Tense" — "we're living in the age of the great dispersal" as Americans migrate "from the inner suburbs to the outer suburbs, to the suburbs or suburbia," building veritably instant communities in places like Mesa, Ariz., and Pahrump, Nev. We are seeing farmland and wilderness becoming exurbs and suburbs becoming urbanized. In 2002, about 14.2 percent of Americans moved. A significant portion of our peripatetic population is not tied to a job, a factory town or other traditional reasons for staying put. This longing for something new has had a major influence on retail. Category killers are a bit like the 18th-century itinerant peddlers who traveled America to seek customers for their wares. When faced with population shifts, category killers abandon one location to quickly build another one a mile or two down the road. At no time in American history have we seen such an ever-changing retail landscape, where old sites are abandoned and new opportunities arise at breathtaking speed. Brooks describes it like this: "It's as if Zeus came down and started plopping vast development in the middle of farmland and the desert overnight. ... A big-box mall. Boom!" Old malls closing And that's just in recently developed parts of the country. What about all that land occupied by malls? Since the mid-1990s, at least 300 older shopping malls have been leveled, shut down or converted to an alternative use, according to the Urban Land Institute; an additional 300 to 500 regional malls are destined for a similar fate over the next few years. These regional centers cover 30 or so acres and 300,000 to 400,000 square feet of retail space, and traditionally have been anchored by at least one large full-line department store. The most viable of these regional centers are being expanded to super-regional centers, covering 50 or more acres with 750,000 to 2,450,000 square feet of retail space, anchored by several large full-line department stores. To respond to increased competition in the marketplace, more than 60 percent of these centers have undergone renovation and/or expansion in the past five years, according to the International Council of Shopping Centers. No wonder the Los Angeles Forum for Architecture and Urban Design once held a "Dead Malls Competition" to generate new thinking on how to alter the traditional shopping mall. This contemporary direction is a part of a "New Urbanism" movement, which is dedicated to creating mixed-use neighborhoods where people can live, work, shop and recreate within walking distance of their homes. Developers and retailers are figuring out how to define the mall and how to keep viable the existing retail real estate. Westfield Holdings, the Australian-based shopping center developer (which owns Westfield Shoppingtown Southcenter in Tukwila), believes that — with the consolidation of department stores — mall developers must assemble in one center every kind of retailer: category killers, department stores, general merchandise discounters, warehouse clubs and supermarkets, as well as movie theaters and restaurants. Although common in Europe and Australia, this hybrid center is only just beginning to be seen in the United States. "Historically, the department stores didn't want the discounters in their malls, so the discounters went across the street," said Richard Green, vice-chairman of Westfield Holdings. "Today, companies like May, Nordstrom, Sears and Macy's see that it's good to have a Target or a Wal-Mart in the same mall because those stores create more traffic. The center of the 21st century is orienting itself to having many types of retailers under one roof — from Costco to Neiman Marcus and everything in between. That's why we believe that a lot of the retail real estate that some people thought was going to be dead is going to be vibrant." Many malls that were once enclosed are being converted to open-air formats. These properties are being split up for easier access, adding many more entry points as they combine the outdoor open strip mall with the supercenter concept to produce the feel of a community center. In this type of arrangement, retailers will be able to attract customer traffic from the streets, not just from within the mall. Faced with the problems of vehicle traffic, air quality and urban sprawl, developers are taking unused or underused parts of their malls and creating mixed-use, pedestrian-friendly spaces that combine residential, office and retail space, as well as a variety of urban services, such as medical care, and libraries, post offices and other government buildings. These properties are attracting people who prefer to live close to where they work and to have all the amenities close by. Some malls are adding hospitals, churches and day-care centers. Sounds very much like the old Main Street, but with a slightly modern twist. Return to the inner city In many parts of the country, the old downtown center is coming back as aging empty-nest baby boomers return to the inner city so that they can shop and work within easy walking or driving distance. The 1990 census showed a slight increase in inner-city population for the first time since 1940; the 2000 census also showed a similar uptick. Because more and more consumers are interested in shopping within their own neighborhoods, retailers are helping to revitalize those neighborhoods. Over the past few years, a new retail concept — lifestyle center — has burst upon the scene. This free-standing upscale shopping environment combines desirable specialty retailers with the convenience of a strip mall. These open-air centers are ideally between 250,000 to 300,000 square feet with nearby parking. Lifestyle centers are a reaction to the need of time-pressed consumers to drive up to the store, get what they need and get out. They combine that quick in-and-out shopping experience with a little bit of Main Street, with cozy village squares and tree-filled parks, with a little bit of the upscale shopping experience of Rodeo Drive in Beverly Hills. They typically include tenants such as Talbots, Williams-Sonoma and Barnes & Noble, as well as movie theaters and restaurants. [In the Seattle area, University Village is the best example of a lifestyle center.] Southcenter plans In Tukwila, Westfield Holdings has big plans for Shoppingtown Southcenter, which it acquired in 2002. It opened in 1968 as Southcenter Mall. Westfield, which owns a controlling interest in more than 60 U.S. shopping centers, will be adding to the mall's south side some 450,000 square feet of retail space, including large and small specialty stores, discounters, restaurants and a 16-screen movie complex, thereby increasing the size of the Puget Sound area's largest regional shopping center to 2 million square feet. Most of the expansion is to be built on a former parking lot and 6 acres on a corner of Southcenter Parkway, where a hotel once sat. Farther on down the road, a plot of land that once held a JC Penney distribution center and a single-story office building are also earmarked for retail expansion. All told, the city of Tukwila, where all of this retail is located, collects about $1.6 billion annually in retail taxes, according to Alan Doerschel, city finance director; $15.6 million of that goes into the city coffers. But, as Doerschel points out, that money comes with responsibilities and obligations. "People think of Tukwila as a wealthy city because we have so few citizens [17,000] and all this revenue. We have to provide a huge amount of infrastructure and support to this commercial area. We need to keep the arterial streets open to keep traffic moving. We have 70 police officers. A town our size should have 10 or 15. We have four fire stations; again, a town our size should have one fire station." Clearly, municipalities such as Tukwila and Renton (home of Wal-Mart, Ikea and Fry's Electronics) have learned that there is no free lunch when it comes to the taxes generated by retail sales. All municipalities and local government entities must take these added responsibilities into consideration when they avidly recruit big-box retailers. Category killers offer more products in their classification than could ever have been found in a general merchandise store or a department store. They have driven out the inefficient or uncompetitive retailers, and they have enabled virtually every consumer product to be affordable to middle-class shoppers. Leveling the playing field While critics contend that these retailers destroyed our mom-and-pop culture, there is more to the story. Granted, many mom-and-pops have gone by the wayside for a wide variety of reasons. But, after all is said and done, big-box stores have also been a boon to small-business owners because they offer every product and service required to run their companies. They have leveled the playing field to enable even the smallest enterprises to extend their reach from around the corner to around the world. As long as the American population remains restless and migratory, category killers will continue to grow and be a part of the landscape, be it Mesa or Manhattan. They will continue to thrive in their categories because of their enormous buying power, product assortment and sharp pricing. Ten years from now, will category killers be as dominant as they are today? The answer to that question will depend on how they meet the challenges of the marketplace. Like department stores in the early 1980s and traditional discount stores in the early 1990s, category killers will have to protect their market share from other channels of distribution, including the Internet, general merchandise discounters, warehouse clubs, existing retailers who have adjusted to the times and upstart retailers within their existing category that have come up with fresh new ideas and approaches. To the extent that they adapt, they will continue to be important. Otherwise, like the retail dinosaurs that once ruled the American retail landscape — Montgomery Ward, Kmart and others — they will slowly fade from the scene, replaced by newcomers who better understand the current needs of our consumer culture. More REIT Links News Links
Update: Fourth Experiment in Stock Picking 1-31-05 A less than sector balanced portfolio is compared with the average of two REIT index ETF's: ICF [Cohen & Steers Realty Majors - the top 30 REITs by market cap] and RWR [the REIT Wilshire Index]. The first experiment went from Nov 02 to Oct 03, the second experiment went from May 03 to May 04 and the third experiment went from Jan 04 to Dec 04. This experiment continues a shift towards being over weighted in retail and having two key holdings - MLS and VNO. Both MLS [at 7.41%] and UDR [at 7.87%] had large gains in December [and thus stretched valuations] just prior to the start of these stats. It is probably true that valuations were stretched all year. And four of these stocks [MLS at 50.72%, DDR at 38.25%, VNO at 44.24% and OFC at 44.62%] notably out-performed the ETF's and REIT sector fund average of 32%. So I might expect to give back some [but not all] of 2004's 300 basis point out-performance of this portfolio. Earnings Guidance: OFC gave 05 FFO guidance of $1.78 - $1.85 per diluted share in their Q4 conference call on 2-10-05. The current consensus estimate is $1.84. United Dominion Realty Trust on 2-16 announced that its Board of Directors has approved a 2.6% increase in its common stock dividend for 2005 to $1.20 per share. This is the Company's 29th consecutive year of dividend increases.
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