Investors should avoid investments in mortgage real estate investment trusts that have a large exposure to subprime lending and office REITs that have assets in areas with high vacancy rates, according to a senior analyst at Zacks.com, Chicago.In an interview circulated by the company, Greg Sukenik said yields for mortgage REITs are attractive, but that "we think things could get worse, and there is the possibility that many subprime lenders will become insolvent." He cited in particular New Century, which he described as one of the larger subprime lenders that Zacks has downgraded to Sell. New Century will "make it through the current downturn, but we expect a large dividend cut in 2007," Mr. Sukenik said. Regarding office REITs, the analyst said coastal markets are "performing much better" than those in the Midwest and the South. "We tend to favor REITs that have hard-to-duplicate urban properties in large cities, like New York, Boston, and San Diego," he said. Office REITs with assets in areas that have high overall vacancy rates should be avoided because rent growth is "very difficult" in such markets, Mr. Sukenik said. He cited Liberty Property Trust as an office/industrial REIT rated Sell by Zacks that "has trailed peers" in funds from operations growth in recent quarters. Zacks can be found online at http://www.zacks.com.
