Shorting Commercial Real Estate with REIT ETFs

REIT ETFsCommercial real estate has held up during the housing slow down, until now.

According to a March 4 WSJ article, the Moody’s index of commercial real-estate values fell 1.5% in December from the previous month, the fourth steepest monthly decline in the seven-year history of the index. The article goes on to quote projected declines of commercial real-estate values that range from 15 – 20% (Moody’s) to as much as 26% (Goldman Sachs).

Investors can position themselves for a decline in commercial real-estate prices with the ProShares Ultrashort Real Estate ETF (Amex: SRS). As the Ultrashort name implies, SRS seeks investment results that correspond to twice the inverse of the daily performance of its benchmark – the Dow Jones U.S. Real Estate Index.

The index is not a pure play on commercial real estate or REITs, but does cover a broad base of developers, operators and owners of shopping malls, residential developments, office buildings and public storage. The top 3 components of the index as of December 31, 2007 were Simon Property Group Inc (NYSE: SPG, shopping malls), ProLogis (NYSE: PLD, industrial distribution) and Vornado Realty Trust (NYSE: VNO, office buildings).

Buckle your seat belt before investing in SRS. Although the Ultrashort ETF has outperformed the S&P 500 over the last 6 months, the volatility can be stomach wrenching. SRS was up $10.90 or 9.6% in just today’s trading.

See the ProShares website for more information and consult your financial advisor for best results.

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