Real estate funds defy forecasts with 27.6% 2010 gain

Funds increase their dividends and benefit from discounted commercial properties and REIT’s.  A good year for Real Estate Funds, the key to 2011 will be to watch what’s in their portfolios…. my personal reading of the tea leaves suggests commercial and residential real estate are in for a very rocky year to come.  If the funds are holding the underlying asset that has been financed in the past 2-5 years that could be problematic, however if they are buying up all the properties financed in the same period for pennies on the dollar it will indeed be another good year.

Real estate funds defy forecasts with 27.6% 2010 gain

By Matt Krantz, USA TODAY
Despite rumors of an upcoming collapse in commercial real estate, real estate mutual funds continue to bring home solid returns.

Investors bracing for part two of the financial crisis, this time in commercial real estate, missed out on a 27.6% gain, according to Lipper, by real estate mutual funds in 2010. These funds capitalized on discounted prices for commercial property and real estate investment trusts as well as lucrative dividend yields.

“There was less of a distressed environment (for commercial real estate) than many perceived,” says David Lee, portfolio manger of the T. Rowe Price Real Estate fund, one of the top-performing real estate funds last year, returning 29.9%.

Using 2010 as a guide, investors are closely watching trends going into 2011 that might influence real estate mutual funds, including:

Changing dividend yields.

Shifting real estate demand amid economic recovery.

Improving health of real estate companies

And of course, the caveat ( I love analysts and stock predictions, you can always find one telling you what you want and that you should have sold after the stock has plunged, didn’t you listen to their predictions after all?)

But commercial real estate funds face dangers. REITs’ dividend yields are less attractive as Treasury yields rise, Florance says. Many commercial real estate companies, meanwhile, face debt payments the next four years that could become onerous if the economy isn’t healthy, Lindemann says. “It would be very surprising … if we saw another year of such significant outperformance.”

Here’s the story from USA Today.

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