Hedge funds bet on US property rebound

London — Hedge funds piled into long positions on US real estate investment stocks last week, the sixth straight week that these speculators bet on a rebound in commercial and industrial properties, according to Goldman Sachs.

Commercial real estate exposure is back in the spotlight after New York Community Bancorp (NYCB) recently reported it had set aside huge provisions against its commercial real estate loans. NYCB shares have plunged more than 65% so far in 2024.

While small and mid-sized banks heavily exposed to office and retail properties have been hurt by a postpandemic shift in work and shopping habits, a sharp fall in their valuations has also created opportunities for the likes of hedge funds.

Real estate was the most net-purchased stock sector tracked by Goldman Sachs prime brokerage, which serves hedge funds, Goldman wrote 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 [real estate investment trusts] to buy into the market at lower prices,” said Bruno Schneller, an MD at INVICO Asset Management, referring to investors picking up offloaded loans from banks with commercial real estate exposure.

Hedge funds have noted that this may in turn increase the value in Reits.

Much of the hedge fund buying was in Reits with diversified portfolios and those that focus on office space and specialised real estate holdings, Goldman Sachs wrote in the note.

Hedge funds were still short on Reits that focused on healthcare and retail, as well as 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 wrote.

The resilient US 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.

Reuters