I wrote a column on Vornado (VNO) as a buy at 18 in Sep’22 as it was slammed by the pandemic, its debt load and the Fed’s draconian rate hikes. So VNO’s price ascribed a $450 a square foot value to its prime Manhattan office/Fifth Ave retail portfolio even though its occupancy rate was 91% as the pandemic raged. To help my Dubai friends grasp that deep value discount in VNO, I wrote a post titled buying Manhattan at Karama prices at $18.

After initially rising to $26 by February 2023, VNO was slammed by the depositor run and Fed bailout in Silicon Valley Bank and First Republic on investor angst on their bond portfolio after Powell raised the Fed funds rate from 0.5%-5.5%. A regional banking crisis could have escalated into systemic contagion, a no-no for Uncle Sam since regional banks owned 70% of all US CRE loans. So a Fed bailout of SVB and First Republic was inevitable while Powell’s tight money pivot led to a plunge in both inflation and interest rates by summer 2024. VNO rose from a cycle low of 14 to almost 44 now. Moral of the story, making big money in real estate means getting both the brick and mortar and interest rate cycle right. My friends who bought VNO at 18 have made an almost 150% profit on their capital in 2 years with near zero transaction cost. Sure beats flipping houses and praying for the greater fool theory to work in your favour in a notoriously illiquid speculative asset class.

The REIT Index has underperformed the S&P 500 goosed by Mag-7. However, despite the goldilocks economy, there is valuation froth in the SPX at 23X. While higher transaction volumes, lower inflation and US Treasury bond yields tell me that it is now the time to rotate into real estate on the NYSE. Mr. Market is whispering to me that the pandemic/banking/tight money/remote work/telecommuting blues for CRE is now over and it is time to go deal hunting for discounted brick and mortar property on Wall Street. I love fundamentalists property analysts though not the beirdo-weirdos who operated from caves in Afghanistan.

I believe owning the right REITs will be a money making strategy in the coming US real estate cycles, even if my VNO trade idea was a roller coaster in the first half of 2023. I have made no secret about my fascination with industrial and data center REITs, segments that have rewarded patient investors with 10-20X multiples of their capital in the past two decades.

In 2024, the first Baby Boomer turned 79 and the biggest/richest generation in American history with 74 million members are now prime candidates for senior housing demand. Yet there is a supply squeeze in this segment due to Uncle Jay’s tight money and Uncle Joe’s long permit/construction lead times. Data center REITs are priced to perfection and Prologis is the only industrial I like at the right price. New York office is still a winner but I will not touch San Fran with a barge pole, go COLD turkey!