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Real Estate ETFs Could Be Vulnerable As Luxury Market Collapses

Friday, February 24, 2017 7:27
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(Before It's News)

From ""
target="_blank">Tyler Durden
: Not all is well in the luxury
segment of the US housing market, manifested best through
Manhattan’s luxury condo segment, where as reported here over the
last few months, there has been a sharp deterioration. "more-157299">

A quick sampling of recent stories on the topic reveals that the
situation is indeed bad, and getting worse:

Yet while all these external observations are troubling, nothing
compares to the perspective of a real insider. Overnight we got
just that, courtesy of Barry Sternlich, CEO of the Starwood
Property Trust. As a reminder, Starwood Property Trust isn’t a
traditional mortgage REIT plowing its capital into mortgage-backed
securities, but instead, its primary business is the direct
financing of real estate projects, and as such it is far more
familiar with the nuances of a given real-estate market than those
who transact in bulk.

It is what Sternlicht said during yesterday’s STWD conference
call that caught our attention, and which confirms that while the
market may be at all time highs, that optimism is now very far
removed from the one sector that has traditionally benefited the
most from a soaring S&P500: Manhattan luxury real estate. This
is what he said about the state of the rental market:

New York City rental market is going to be weak. It is
weak. It is going to continue to be weak.
You saw that in
our earnings statement. Similarly, parts of South Florida,
particularly only really our focus on Miami has a similar
situation with a lot of condos coming online
with a much
different structure than any market we have seen before, because in
most cases the individuals have up to half of the cost of the
apartment paid for as a deposit.

And then the Manhattan high-end condo market:

… there is one market in the country which is quite weak, but
where the weakest market is where there is almost no loans at all.
So we are looking at places like Manhattan. The condo
market at the high-end, you know, is a catastrophe and will get
The hotel market is weak, not terrible, still
profitable, but you are not seeing RevPAR increases year-over-year,
in part because of the dollar and also because of supply.

Needless to say, if the economy – and especially the upper
segment, the one that benefits the most from a record stock market
– was running smoothly, none of what Sternlicht said would be
applicable, which begs the question: what is the source of this
“catastrophic” disconnect.

The Vanguard REIT Index Fund ( "" target=
was unchanged in premarket trading
Friday. Year-to-date, VNQ has gained 2.99%, versus a 5.27% rise in
the benchmark S&P 500 index during the same period.

VNQ currently has an "" target="_blank">ETF Daily
News SMART Grade
of A (Strong Buy), and is
ranked #1 of 20 ETFs in the "" target=
"_blank">Real Estate ETFs

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