Buying real estate isn’t a popular view right now. But that’s what being a contrarian is all about. To be sure, real estate pain surrounds me. I see it everywhere. Empty buildings are in neighborhoods around the country. In my own neighborhood, I can look down the street and see a beautiful 3,500 square-foot home stand empty. The owners left in September of 2007.

Their realtor doesn’t even stop by anymore. The flyer bin has been empty for months. The lawn is a mess. And I can’t imagine what else goes unattended.

James B Rogers, Jr. says this is “one of the worst [recessions] since World War II.” Stocks with exposure to the credit markets have been crushed. Consumer-dependent stocks such as retailers are reeling.

Occasionally we see a relief rally, but smart investors see these as bear traps. One has to wonder if we are at the beginning of a drawn-out grinding bear market, or if the goldilocks economy will reappear on the horizon.

The University of Michigan consumer sentiment index, the most widely quoted barometer of public feelings about the economy, fell in early April to 63.2, its lowest level in 26 years.

High food and gasoline prices, as well as rising unemployment, have made consumers pessimistic about the future. Financial hardships are influencing Americans’ pocketbooks more negatively than at any time since 1980.

The real estate market is in the dumps. It is lower than even the battered stock market. The worst performers by a mile are the firms with interests in real estate. Many economists see parallels with 1977, which saw inflation coupled with stagnation.

I don’t buy into their views.

Ben Bernanke and his friends in the United States Congress are doing everything they can think of to lower mortgage rates and resuscitate real estate.

As a result, I think we could be closer to the end of the bear market in real estate, than the beginning. This doesn’t mean we are out of the woods yet, but its time to start scouting for under-priced values in real estate, especially in the commercial sector…

The Commercial Real Estate Bargain Bin

In my view, commercial real estate has been unfairly beat up by the residential sub-prime lending mess.

As a contrarian, that’s a perfect time to buy.

At some point (though we don’t know exactly when) foreclosure signs will slowly be replaced by sold signs. Empty buildings will be filled with new businesses, and you want to be buying now so you can be a seller once prices head higher.

This is the difficult part of being a contrarian. It is hard to make the switch from being bearish to bullish when everyone around you is still bearish.

How to Buy Dollar Bills for 67 Cents

You do not want to wait and start buying once the recovery is well under way because you will miss some of the most profitable price moves.

Instead of hiding from the market in cash accounts yielding 1% to 2%, I encourage you to research some of the screaming values in the commercial real estate sector most affected by the downturn.

We’re talking about Real Estate Investment Trusts, or REITs. Because of their unique tax status, they are required to distribute earnings to shareholders, often paying fat dividends. And with the recent correction, many of these firms’ share prices are trading below the value of the real estate they own.

One REIT I particularly like is HRPT Properties Trust (NYSE: HRP). It traded as high as $13.40 in 2007. The huge drop in its share price since then does not change HRPT’s assets. Today you can own it for $7.34.

At this price, it trades at 67 cents on the dollar of its book value, and yields over 11%.

You are buying HRPT’s 351 office properties and 153 industrial properties for less on Wall Street than you could directly, even in the depressed real estate market.

In short, commercial real estate is on sale on the NYSE right now. And with HRPT, you’ll be buying $1 of real estate for 67 cents. Not bad.

Good Investing,

Floyd