- the source for market opinions


November 17, 2016 | Canadian REITs, Next ‘Big Short’?

Danielle Park

Portfolio Manager and President of Venable Park Investment Counsel ( Ms Park is a financial analyst, attorney, finance author and regular guest on North American media. She is also the author of the best-selling myth-busting book "Juggling Dynamite: An insider's wisdom on money management, markets and wealth that lasts," and a popular daily financial blog:

Further to the  vulnerability in insanely valued, heavily levered Canadian housing today, real estate investment securities reflect potentially even greater downside risk.  After all, at least you can live in housing as the price goes down (if you can maintain the payments), but for those holding real estate investment trusts (REITs), plunging price has no offsetting consolation or utility–just capital losses and mental torture.

As shown here on the Blackrock website, the Canadian (XRE) REIT reports a mix of realty types but as CMHC has pointed out, a downturn in Canadian home prices should be expected to spike unemployment and lead to an overall recession which will have knock-down effects on other wildly over-built areas like retail and office. (Diversified REIT’s are just those who do not break out their specific weights in each of the sectors).


Here is a chart of the US commercial property index to get a sense of how far prices have lept since 2009.
commercial property index

Below is my partner Cory Venable’s chart of the Canadian real estate investment trust (XRE) since 2002.  Arguably even more than 2008, price risk is u-u-u-g-e at the moment.  On the other hand, a mean reversion of 30 to 50% would go a long way in increasing yield and restoring investment prospects once more.  Unfortunately those who have been buying these securities in search of income the past few years, will be side-swiped.  Wise to wait on the sidelines for now. Much better entry points are likely as this cycle completes.


STAY INFORMED! Receive our Weekly Recap of thought provoking articles, podcasts, and radio delivered to your inbox for FREE! Sign up here for the Weekly Recap.

November 17th, 2016

Posted In: Juggling Dynamite

Post a Comment:

Your email address will not be published. Required fields are marked *

All Comments are moderated before appearing on the site


This site uses Akismet to reduce spam. Learn how your comment data is processed.