Hedge funds piled into long positions on U.S. real estate investment stocks in the week ending Friday, the sixth straight week that these speculators bet on a rebound in commercial and industrial properties, a Goldman Sachs note said.
Commercial real estate (CRE) exposure is back in the spotlight after New York Community Bancorp recently reported it had set aside huge provisions against its CRE loans. NYCB shares have plunged over 65% so far this year.
While small and mid-sized banks heavily exposed to office and retail properties have been hurt by a post-pandemic shift in work and shopping habits, a sharp fall in their valuations have also created opportunities for the likes of hedge funds.
Real estate was the most net bought stock sector tracked by Goldman Sachs prime brokerage which serves hedge funds, Goldman said in a note published on Friday and seen by Reuters on Monday.
“These banks are facing a real crunch, needing to sell off assets potentially below recent appraised values to manage their balance sheets. This situation presents a unique opportunity for REITs to buy into the market at lower prices,” said Bruno Schneller, a managing director at INVICO Asset Management, referring to investors picking up offloaded loans from banks with CRE exposure.
Hedge funds have noted that this may in turn increase the value in REITs.
Much of the hedge fund buying was in real estate investment trusts with diversified portfolios as well as those which focus on office space and specialised real estate holdings, said Goldman Sachs.
Hedge funds were still short REITs that focused on retail, health care and hotel and resort spaces, the bank added.
Long positions compared to bets against the sector are relatively near their highest in the past year, it said.
The resilient U.S. jobs market and broader optimistic economic prospects make real estate a sector that would benefit from a robust economy, said Schneller.
“The move to go long on real estate is not merely a bet on economic endurance but a calculated engagement with a sector showing signs of a U-shaped recovery,” he said.
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