Buy Deltic Timber (DEL)
Deltic Timber (DEL) owns 439,000 acres of timber land in Arkansas and Louisiana. Most of that the company uses to produce timber and pulp wood, but the company is turning an increasing piece—well at least increasing until 2007 put the kibosh on the real estate market—into commercial and residential projects including its flagship Chenal Valley, a 4,800 acre community built around two Robert Trent Jones golf courses.
This year probably marked a bottom for Deltic’s real estate operations.
Is this the end of the housing recovery? Even talking about an end to government subsidies sends the market into a tizzy
The program that gives first time home buyers an $8,000 tax credit is due to expire at the end of November.
The Federal Reserve will talk about winding down its buying of mortgage-backed securities in its two-day meeting this week.
Will that be the end to the rally that saw new-home sales rise 9.6% in July from June? That’s the biggest sequential month to month jump since 2005. And that saw stocks of home builders such as D.R. Horton (DHI) and Lennar (LEN) soar 40% and 66%, respectively, from July 1 to September 21?
Update Rayonier (RYN)
Considering that investing in timber seems to be falling out of favor, shares of Rayonier (RYN) have held up extremely well over the last six weeks. The stock is essentially unchanged at $42.96 on September 18 from its August 5 price of $42.29.
Now normally I don’t like to own shares of any company when its sector is falling out of favor—it puts the trend against me rather than with me—but in this case I’m willing to hold on because the negative short-term trend is a big long-term positive.
Corus signals the next wave of bank failures
Here we go again.
On Friday, September 11, regulators seized Corus Bank of Chicago.
It’s the biggest bank failure to date with its roots in the commercial real estate and construction loan market. And it marks the start of the long-feared next stage of the banking crisis.
The first stage was fueld by bad loans in the residential real estate market–mortgages to individual home buyers. The next stage will take down bank that made bad loans to real estate developers.
This time most of the damage will be done to small and medium-size banks with big exposure to local commercial real estate markets.
Such as Corus Bank.
Corus, owned by holding company Corus Bankshares (CORS), had made $3.9 billion in condominium construction loans in overbuilt markets such as South Florida. More than half of those loans had stopped making payments or were in foreclosure, the company disclosed in April. The portfolio had continued to deteriorate since then.
Corus is/was an extreme case: construction loans accounted for more than 85% of the bank’s outstanding loans at the end of the first quarter. That’s a higher percentage than at any other U.S. bank with more than $100 million in loans outstanding.
But while the degree of its exposure to the sector pushed Corus over the brink early, the bank’s failure is just the first of many to come fueled by the problems in the commercial real estate sector.
Psst! Want to make some money on the collapse in commercial real estate? Here’s a fund manager who knows how
The commercial real estate sector is in chaos. And the market is still collapsing with delinquencies on commercial mortgages still climbing. (For more on the commercial mortgage meltdown see my post, “Danger to banks from commercial mortgages still climbing” from 8:30 a.m. on August 12.)
You’d think there would be money to be made out of that situation if you can pick the winners and avoid the soon to go bust. And you’d be right.
I don’t have any faith in my own ability to sort through the haystack of commercial real estate stocks, trusts, partnerships, and what not. I know I don’t have the experience or the contacts in real estate to separate the sinking ships that will indeed go to the bottom from the sinking ships that will survive the storm after pumping like crazy.
But I can name a mutual fund manager, Ken Heebner, who does know this sector so thoroughly that I think he could make you some good money here. I wouldn’t bet my retirement money on this fund, CGM Realty (CGMRX). Heebner tends to make big bets and the fund is very volatile. In 2008,for example, it posted a 46.8% loss. But if you’ve got some speculative money looking for a home, and have the nerves of steel that you might need to stay on board until the profit materializes, then this fund’s upside volatility is for you.
