New Real Estate Hedge Funds Popping Up

Tash cautions that shorting purely on valuation is a "fool's game." Even though many sell-side analysts have been warning for some time that REITs are overvalued and due for a correction, the sector continues to go higher, proving all the doomsayers wrong. Even Leupp, the RBC analyst who is now raising money for his hedge fund, had predicted in early 2005 that REITs would end the year either flat or down 10%. Instead, the MSCI U.S. REIT Index rose more than 12%.

Tash says short opportunities still remain in residential-mortgage REITs, and counts homebuilders among event-driven shorts, based on some "negative clouds on housing."

Half of the holdings in Cliffwood's hedge fund are C-Corps rather than REITs. Tash decided over a year ago to limit his exposure to the REIT sector because of its growing volatility (partly due to macro hedge fund interest) and because he saw better value outside of REITs.

One of the firm's largest long positions is Intrawest (IDR Quote), a Canadian operator of golf and ski resorts. Last week, the company said it hired Goldman Sachs to review its strategic options, including cashing in on some of its lucrative real estate. The stock has since surged 11%.