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3 Great Real Estate Plays

Posted August 15, 2008

Krista Das on TFN Market Insights Waiting for the housing bottom? Lou Basenese, one of the industry’s sharpest analysts gives us the scoop on the U.S. Housing Crisis and explains why he is jumping back in to play the real estate rebound now.

by Krista Das

Baltimore — (TFN): It just keeps getting worse. Every day the number of foreclosures and bank owned property breaks record highs. Are we anywhere close to hitting the housing bottom?

To give us the scoop on the U.S. housing crisis, Lou Basenese, associate investment director for Oxford Club and one of the industries sharpest financial analysts is on today to reveal three sure-fire ways to play the real estate rebound.

Lou, welcome to the show.

Many investors are watching the clock. They can’t wait to get their hands around the real estate market, but they’re holding back until the first signs that house values are going back up and you’re doing the opposite. Why are you ready to jump back in and not willing to wait it out?

Lou Basenese: Well, I think most investors are making a big mistake. They’re trying to wait for one sign that’s going to signal the ultimate bottom. The fact of the matter is it’s just not going to happen. There’s not going to be one data point that says it’s all clear, time to get in. It won’t be new inventories. It won’t be building permits. None of that.

The market looks forward. So by the time that data’s available, the prices of these home builder stocks and other real estate related investments are already going to be moving on.

So I’m just making the calculated bet now that it’s better to get in albeit in a small portion, but get in before the rebound inevitably occurs.

Krista Das: So what’s your overall investment strategy for real estate?

Lou Basenese: Well, the Oxford Club is very simple. We want to do it prudently and by that I mean if you look at the markets, they’ve been up and down so your asset allocation is probably out of whack right now.

So what we’re simply suggesting is that you rebalance and bring your allocation to real estate back to the target. For us at the Oxford Club that means bringing your targets back to five percent and in so doing, do it with high quality assets.

I’m really convinced that there’s a lot more upside potential than there is down side risk at this point.

****View the video here…Lou Basenese on TFN Market Insights

Krista Das: I was reading one of your articles from Oxford Club Communiqué that you suggest investing in apartment rates. Is there a play that you recommend?

Lou Basenese: Absolutely. I think apartment rates you really can’t go wrong with them right now for the simple fact that we know foreclosures are spiking. And that obviously means that the rental pool is growing.

So my favorite play in the space is Equity Residential Properties; ticker EQR. Great track record. Returns about 15 percent each year. Run by a real estate guru. It’s not Donald Trump, but it’s the next best thing, Sam Zell.

On top of that you’re getting exposure to 165,000 apartments in 25 different states. More importantly you get paid to wait. The EQR sports a current dividend around four and a half percent.

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Krista Das: You also recommended looking at the timber industry. Why is that if that homebuilders are suffering so much now?

Lou Basenese: That’s a great point. The homebuilders are suffering so inevitably lumber sales are down and prices for lumber are down, but the thing that most people don’t understand about timber is that it’s very non-correlated with the stock market.

So timber land and timber stocks tend to zig while the stock market zags. On top of that, timber represents one of the only assets that actually is almost guaranteed to increase. Just think about it. If timber prices aren’t strong, you don’t have to sell. More importantly, that asset grows on the stump.

Average increase in timberland price is about eight percent a year. So you get a guaranteed increase in a high quality asset. I like in this space Rayonier, ticker RYN. They also have a high margin fiber performance segment that provides a good cushion to offset the real estate slow down.

On top of that, again, you’re getting paid about four percent while you wait.

Krista Das: Sounds good. And you suggested looking globally for real estate. Tell us how.

Lou Basenese: I think globally is a smart move now, too, because we have a tendency not to look out beyond our own communities, beyond our own states and beyond our own borders, but the fact of the matter is real estate isn’t bad everywhere.

So my favorite play to try and be an international landlord without all the headache is the ING Global Real Estate Income Fund. This is more income oriented, but it’s giving you great exposure through 117 different companies spread across all the real estate sectors in different countries as well. Best of all it pays a monthly dividend, which is nice in this economy and the current dividends are close to ten percent.

Krista Das: Lou, great ideas. Thanks for talking real estate today.

If you would like to rebalance your portfolio with Lou, check out his investment research service, Oxford Club Communiqué by clicking on the screen or go directly to Today’s Financial News.com.

Thanks for watching. Until next time here’s to great profits from smart investing.

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