This from Today’s Financial News:

Just a few days ago, I wrote about how the housing slowdown has reached its lowest point. I told readers that some real-estate investment trusts (REITs) look downright promising. I also warned that others were in extremely dangerous territories.

Yesterday’s consumer spending figures proved my theory was right on track. The report showed that while consumer spending dropped 1.2%, healthcare spending was up by a similar amount.

In other words, REITs that specialize in healthcare properties, like National Health Investors (NYSE:NHI), will beat the markets. And their counterparts that focus on retail-related properties, like Simon Property Group (NYSE:SPG), are going to under-perform.

Going out of business sale

Mall owners saw their share prices get slashed yesterday. As a whole, retail-based REITs dropped over 14%, while the rest of the markets dropped by just 8%. Stocks with those kinds correlations to consumer spending are not the kind of stocks you want to be investing in during a recession.

The pain is only going to get worse for REITs like Simon Property. Right now, out of the more than 380 malls the company owns, 91.8% of them are occupied. This time last year, that figure was only slightly higher, reading at 92% occupancy. Only a few less stores are rented now than last year.

Those two figures should scream to potential investors that the worse is yet to come. Because store closures significantly lag behind dwindling retail stores, we are going to see occupancy rates drop for several more quarters, if not years, to come.

Going belly-up

Companies like Circuit City (NYSE:CC) and Linens ‘n’ Things are in serious trouble. The electronics retailer is within grasp of bankruptcy. And the home furnishings chain is closing its door for good, with some stores shutting down as soon as tomorrow.

It is the same picture all over the industry. Mall occupancy rates will soon start to plummet.

Needless to say, the retail REIT sector is in serious trouble. As a value investor, it may be tempting to grab these stocks at current prices (they have fallen more than 40%) thinking they have reached their bottom. Do not do it. It is a trap.

The retail industry’s woes have just begun. The problems will get much worse before they even think of getting better.

If you are looking to play the real estate industry and take advantage of its sizeable dividends, look at the healthcare industry and its lucrative REITs. There are only two sectors of consumer spending that are actually expanding. Take advantage of them.

Source: Retail figures slump: Simon Property Group (SPG) feels the pain

Think about it this way: we could soon be facing a housing shortage.

Falling property prices and tighter credit markets are putting a stop on construction activity. Buildings — especially in the commercial and industrial sectors — take a long time to put up. So this industry will be the laggard when the economy recovers.

If you don’t own land, Andrew says real estate investment trusts (REITs) are a great way to play the bounce.

But you have to cherry pick.

The retail sector is a nightmare now, but health care is booming. This makes health-care REITs such as National Health Investors (NYSE:NHI),  HCP Inc. (NYSE:HCP), Ventas Inc. (NYSE:VTR), and Nationwide Health (NYSE:NHP) great contrarian buys right now.

More from Today’s Financial News:

With the markets in a dive and talks of a global recession, it is no wonder the real estate industry is on shaky ground. But why are some experts calling for a major housing shortage?

Last week I wrote about the very real possibility that the real estate market has reached its bottom. This week, the headlines are proving my forecast was dead-on accurate.

Just a few days after investors were wailed by talks of gloom and doom across all arms of the economy, the situation in the real estate market is looking much, much more positive.

In fact, some experts are predicting a serious housing shortage in the not-so-distant future.

Think about it. Right now, there is not one builder out there that is certain of his future.

Over the past five years, business was booming. Now, finding folks willing to invest in building a new home or fixing up an existing home is an ever-growing challenge.

Making matters worse, when a builder does find a willing buyer, the tightening of the credit market makes it nearly impossible for him or his buyers to get the needed cash to start the project.

The market mess is creating a black hole in the building industry. Construction sites are empty. Equipment is gathering dust. And weeds are growing tall on proposed building sites.

Damming the waters

With nobody wanting to build now, it means there will be no new buildings in six months, one year, or even two years. When the economy finally rebounds, the building industry will be a laggard.

That is the best news in a long time for the real estate industry, as it will create a serious housing shortage. Thanks to the market’s horrific downturn and eradication of all new building prospects, we will see a major upswing in the real estate market in less than two years as demand rises and supply shrinks.

The shortage will create all sorts of investing opportunities, especially in the industrial and commercial real estate sector, where new projects often take three years or more to complete from ground breaking to ribbon cutting.

Unless you happen to be sitting on a few hundred acres of industrially zoned land, you will have to find another way to take advantage of the coming boom.

Fortunately, real estate investment trusts (REITs) offer an easy and effective way to take advantage of industry up-ticks. Find the right one (there are hundreds of them out there) and you will get a steady stream of dividend income and the potential for the long-term appreciation the real estate industry is known for.

Is there a doctor in the house?

As I mentioned, the current halt to nearly all new building activity will be most pronounced in the commercial sector. Still, that is a huge section of the market with a lot of great opportunities and some not-so-great opportunities.

Many commercial REITs focus on the nation’s retail-store sector. These investments do great when the economy is rolling, but flat-out stink when the market slows. You can do much better in the world of REITs than investing in retail properties.

The area you need to focus on is the nation’s growing healthcare industry. The huge Baby Boomer generation is getting older. Hospitals are expanding at record paces. And more long-term care facilities are desperately needed.

It is a great opportunity for healthcare-focused REITs like National Health Investors (NYSE:NHI). The company owns over 150 healthcare facilities, consisting of long-term care, retirement homes, and assisted living facilities.

National Health is not alone in this profitable sector. REITs like HCP Inc. (NYSE:HCP), Ventas Inc. (NYSE:VTR), and Nationwide Health (NYSE:NHP) are all major players.

What makes National Health stand above the crowd, especially in a highly unstable credit market like this one, is its very low levels of debt. (Its 8% annual dividend doesn’t hurt, either.)

As of last quarter, the company has just $22 million in short-term debt on its books. Meanwhile, it has over $94 million in cash. That means you will not be hearing of emergency capital infusions or liquidity problems anytime soon. National Health has a very strong balance sheet.

As this market mess plays out and the nation’s real estate industry rebounds, investors will begin to realize there is a serious shortage of newly constructed commercial buildings.

The shortage will raise prices for properties across the industry, especially in the growing healthcare sector.

Do some homework, take a look at REITs like National Health and invest appropriately. In less than 24 months, you will be very glad you did.

Source: Housing Slowdown? Try Housing Shortage!

For sovereign wealth funds (SWFs), the answer is commercial real estate. These mega funds are homing in on the sector right now, according to emerging markets expert Irwin Greenstein.

We keep hearing about the real-estate meltdown. But as of the end of September, REITs have been up about 2% for the year — a far cry from the wreckage of other markets.

Whether or not the SWFs are quietly propping up commercial REITs may never really be known. But what we do for sure is that these state-owned mega-funds are honing in on commercial real estate.

If you haven’t heard of a SWF, it’s a state-owned investment fund — often with assets in the billions. Many originate in countries with huge surpluses either from trade or commodities, and they have to keep this money in play all the time.

According to a report from AltAssets, SWFs are moving away from mature industrialized markets and into the so-called MENA regions, an acronym for Middle East North Africa.

In fact, with 2008, SWFs have been focused more on MENA than in the previous year.

What does this have to do with commercial real estate?

For SWFs, emerging markets such as MENA and commercial real estate pose less of a risk than the U.S.

In the second quarter of 2008 the SWFs tracked in the study made 43 deals totaling $26.5 billion, compared to 42 deals and $58.3bn during the previous quarter. More than half the deals and funds invested were in emerging markets.

In conjunction with rising interest in emerging markets, SWFs are allocating an increasing amount of money to commercial real estate.

A report issued by the international capital group of Jones Lang LaSalle said that the second-largest sovereign wealth fund, Norway Government Pension Fund, recently allocated 5% of its assets to real estate, infusing another $20 billion of capital into the real estate markets.

The report continues…

“If China follows suit with 5% of their foreign allocation into real estate, we are at nearly $25 billion. If Korea puts a third of their $10 billion allocated to alternative investment in real estate, that brings the total of fresh real estate capital coming to play in the short term up to $28 billion.”

Another report from real estate services giant CB Richard Ellis says SWFs will potentially invest around $725 billion in the next seven years in the global commercial property markets.

The Ellis report says that typical safe havens will include central London, but other trophy real estate targets could be New York, where the Abu Dhabi Investment Council bought the Chrysler Building.

Distressed real estate is ideally suited to the long-term appreciation strategies of SWFs.

With nearly $4 trillion of total assets currently under SWF control, a 7% allocation would mean worldwide commercial real estate investments totaling $280 billion, according to Ellis.

Putting the figures in perspective, Ellis observed that entire U.S. institutional-grade property portfolio owned or managed by investment managers and plan sponsors is valued at approximately $330 billion.

Based on this research, if you’re a headline investor commercial REITs may not be too appealing at this point in time. For contrarian profit seekers, it could be a good move.

This from The Sovereign Society:

We may — emphasis on the word may — be seeing the first glimmer of hope in the market. History often repeats itself, so it would be wise to keep your eye on this number.

Buried in the news yesterday [Wednesday] was a little note from the National Association of Realtors. They reported an index of sales contracts on previously owned homes rose 7.4% in August from the prior month. The NAR’s pending home sales index was designed to try and measure which way the housing market is going in the future.

Often the industry that crashes first in a financial crisis is the first to recover. If history does anything well it repeats itself. So I’m keeping my eye on real estate.

This index has been long known as a LEADING INDICATOR and this is critical. As a “Leading Indicator,” it’s forward looking; like a crystal ball for the housing industry. Perfect? No, but it’s not bad either. And that’s why I see this as the first glimmer of hope.

The index was also up 8.8% from August 2007. They recorded gains of 18.4% in the West, 8.4% in the Northeast, 3.6% in the Midwest and 2.3% in the South. Even July’s pending home sales index was revised up, to a decline of 2.7% from a prior estimate of a 3.2% decrease.

Karl Case, the “Case” of The S&P/Case-Shiller Home Price Indices (one of the best-known measures of the residential housing market) said in September that he “thinks that the housing market may be near a bottom.” If he’s right, financial firms may be able to breathe a sigh of relief.

And in a paper presented before the Brookings Institution in Washington, D.C. that same month, Mr. Case argued that there is cause for optimism. He noted that of the 20 metropolitan areas covered by the Case/Shiller index, nine have shown prices slightly improving in recent months. He noted that the relationship between incomes and home prices has neared a level seen at the end of past housing slumps.

Buyers are finally coming to the table. Prices have dropped significantly in many areas; Fannie and Freddie have been stabilized. Pent up demand is letting off some steam.

Now, please don’t get the impression that I’m bullish on the U.S. Real Estate Market, but I’m looking, I’m watching, I’m following the data.

There will be huge opportunities again to be made in real estate. History will repeat itself…again. And I want to be there when it happens this time.

Source: A Turning of the Tide?

Eric Roseman says the US REIT sector is likely to recover first. That’s because Europe and Asia are behind the US in the credit crunch cycle and have further to fall.

Pending home sales index bounced 7.4% in September. And government-auctioned foreclosures create great property bargains. Eric says iShares Real Estate ETF (NYSE:IYR) is one good way of playing this recovery.

This from The Sovereign Society:

Since the onset of the subprime mortgage crisis 14 months ago, REITs  have plunged in value – with the biggest declines happening in Europe, Eastern Europe, and Asia.

The turning point for REITs came in early 2007. At the time, an enormous number of new offerings hit the scene and the “bubble” began to simmer. REIT sponsors went hog-wild, with easy credit and the lowest interest rates in a generation.

REITs boomed recently in the Pacific where policymakers introduced new legislation that allowed REIT structures in Japan, Singapore, and Hong Kong.

But REITs have plummeted more than 15% over the last 12 months in Singapore, and they’re down in excess of 45% in Australia. In Japan, J-REITs have tanked almost 30% over the last 12 months and remain 25% off their best levels in the United States.

The Big Chill

In addition to the problem of over-abundant supply, the ongoing credit crisis has also hit REIT values hard over the last year. That’s because developers and property managers require access to credit to expand or modernize existing properties.

With even the highest quality of loan candidates struggling to raise capital this year, it’s no wonder the sector has correlated almost perfectly with bank stocks.

In Asia, 2008 has been especially painful for REITs as the growing credit crisis, falling stock markets and plunging asset prices resulted in the cancellation of offerings.

The credit squeeze has made it much harder to raise equity and debt to finance deals. So now some smaller and mid-sized REITs are now threatened by questionable business models.

It’s the same phenomenon spreading to Europe and even fast-growing Eastern Europe as REIT values have collapsed. Even in red-hot China, many construction companies have either failed or remain technically insolvent as the big real estate boom cools off.

Beyond the Bear…Batting Cleanup on the REIT Crash

The United States REIT sector might lead the rest of the sector to recovery over the next 12 months, assuming the credit crisis ends and banks begin lending again.

But while U.S. REITs have shown signs of bottoming this year, regional REITs in Europe and the Pacific are still in the midst of sharp corrections.

Indeed, as economic growth slows across Europe and Asia over the next several months and more credit-related turmoil spreads to Europe, the United States is starting to look like a relative safe-haven. You see, the ongoing credit crisis hit America first. With the latest passage of the bailout bill in Congress last Friday, markets might start looking at the United States REIT sector as a bell-weather ahead of a recovery.

And we’re already starting to see some positive movement. Since July, the iShares Real Estate ETF (NYSE:IYR) has gained almost 10%, excluding dividends. It’s the same story for most banks over the same period, boosted by the Securities and Exchange Commission (SEC) short selling ban.

The U.S. REIT sector is worth watching carefully. The sector has already been trashed and – from a technical perspective – appears to have formed at least a short-term bottom in late July. Sentiment should improve following the bailout bill.

Still, the country is now in an economic recession and the ongoing contraction might last longer than average recessions because of the massive accumulation of debt and leverage-loan financing.

Pacific REITs will likely be forced to consolidate in the months ahead and that will pose regulatory challenges to corporate charters and shareholders. It’s too early to buy Asian REITs.

Europe, on the other hand, now faces a deeper credit squeeze as bailouts and a new wave of failures comes home to roost. The United Kingdom, Ireland, Spain and Denmark are all home to big real estate busts and it’s spreading. It is unlikely European REITs will bottom until at least late 2009.

Best Buys in Spain, US Foreclosures

For individual investors – especially dollar-based investors – the ongoing contraction in sun-belt values across the Spanish coast looks appealing.

The U.S. dollar is mustering a powerful bear market rally since its July lows, and it’s already soared more than 13% over the last 10 weeks against the euro. Combined with lower interest rates across the Eurozone later this fall or into 2009, financing costs should become more affordable for prospective buyers in the popular Costa del Sol region.

The United States can expect more government auctioned foreclosures in 2009, and that means big bargains for speculators and investors alike. Banks are desperate to remove non-performing loans from their clogged portfolio of real estate deals.

The last bear market in U.S. residential property in the early 1990s resulted in a plethora of deals for distressed buyers in Florida and California, among other states. This bout of real estate deflation now widespread across many regions will result in even greater bargains.

It’s no wonder Europeans have been active buyers of U.S. real estate since 2007 during a strong euro until recently. Now it’s time for Americans to buy domestic, too.

Source: Global REIT Boom Ends with a Thud, and Now It’s Time to Pick up the Pieces

According to RealtyTrac, 1 in every 171 households was foreclosed on, received a default notice or was warned of a pending auction in the quarter. That’s up a massive 121 percent from a year earlier – and 14 percent just from 1Q.

The housing housing market has yet to bottomed out, says Louis Basenese. But this doesn’t mean you shouldn’t consider a play in real estate.

A true contrarian investor is always looking to own shares of companies that are out of favor with the investing public. And no sector has been more discarded than real estate…

I suggest a low-risk, low-hassle, low-cost approach. Leave active management behind and consider the Vanguard REIT Index (VGSIX). It will give you the broadest real estate exposure possible for an almost negligible expense ratio of 0.2%.

Public Storage and Equity Residential Properties are among its top five holdings. Both have returned over 12% this year. The fund also maintains consistent dividend strength, yielding more than 5% right now.

And here’s another little portfolio-boosting secret: This year’s big losers are often next year’s Wall Street darlings. Historical data bears that out. And so will holding a part of your portfolio in real estate.

Of course, the crisis in the US housing market has a massive knock-on effect on the wider economy. We could be heading for serious fallout in other areas of mortgage markets, according to Bill Bonner…

With no house price gains to spend, consumers will have to cut back. When they do, retail sales will fall… and so will the demand for goods and services all up and down the line. So far, we’ve seen a big drop in demand for automobiles – especially SUVs. GM shares are down 75%. We’ve seen a drop in driving too. And unemployment numbers are increasing. But, so far, no big drop in spending. Of course, part of the reason for that is simply that prices have risen so high, consumers need to keep spending every penny – even though they are getting less for their money. But soon, we should see a significant drop in sales, followed by a further drop in economic growth.

Last week, we saw a report telling us that vacancies in retail space were increasing. The United States has ten times more retail space per person than France. When people spend less, much of this space will cease to be commercially viable. Soon, abandoned shopping malls will follow abandoned houses.

“Suburban office space losing occupancy and value,” too, adds the Chicago Tribune.

What this represents to Wall Street is a big drop in the value of its collateral…and its clients’ ability to service their loans. First, the borrowers can’t make the payments. Then, the lenders realize that their collateral is worthless. We’ve seen big hits taken in the subprime mortgage market. But what about other parts of the mortgage market? And what about credit card lending? Student loans? Commercial loans?