Commercial-Mortgage REITs Rally but Concerns Persist

Wall Street Journal (06/04/08) P. C12; Wei, Lingling
Shares of commercial-mortgage REITs are rebounding after taking a beating in 2007 and earlier this year, but the good times may not last for very long. Such REITs, which include Arbor Realty Trust Inc. and CBRE Realty Finance Inc., originate or invest in the debt used to finance the purchases of such commercial properties as office buildings and shopping centers. With the credit crunch easing and liquidity concerns fading, total returns for the dozen commercial-mortgage REITs tracked by the National Association of Real Estate Investment Trusts have risen nearly 16 percent since the beginning of April versus a 20.5-percent dip in the first three months of this year. Still, there are lingering worries that defaults could rise if economic conditions worsen, putting a drag on earnings. In addition, there is some uncertainty as to whether the business model of traditional commercial-mortgage REITs has been rendered obsolete by the credit crisis.