REITs on average now trade at a 9% discount to their net asset values according to Green Street Advisors, of Newport Beach, Calif. Traditionally, they trade at a 4% surplus on average. Various REIT categories are faring worse than the overall average, with mall REITs trading at a 32% discount, office REITs at a 15% discount and apartment REITs at a 13% discount, according to Green Street.
With far fewer property sales occurring these days to influence those figures, it's possible that those calculations don't capture the full extent of the property-value declines occurring. Office-property sales in February were off 95% from the same month a year ago, retail-property sales were down 88% and industrial-property sales down 50%, according to Real Capital Analytics, a New York real estate-research group. Investors have pushed down REIT shares to a level where they think the net asset values will eventually tumble. "We think commercial-property values are in the process of [falling] by 20% or maybe a bit more, and the physical market is probably halfway through that process," said David Harris, a REIT analyst with Lehman Brothers in New York.
Source: WSJ, April 2008