This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Donald Trump Talks Bargains, Bubbles and Bottoms

Stocks in this article: VNO SLG TCO

NEW YORK ( TheStreet) -- Commercial real estate has turned into a hot asset class and many fear that the market could be forming a bubble. The word "bubble" has broader implications than you may think.

As I recently wrote, the less speculative investments have a margin of safety; the larger the bubble, the greater the opportunity for profit. I see no indication that real estate bubbles (or speculative bets) are forming and the evidence is clear that REITs are outperforming all other sectors and most are undervalued today, when you compare historical relationships with investment-grade and high-yield bonds.

It is also clear that cap rates have compressed considerably. The income valuation metric (net income divided by purchase price) that we call cap rates is nothing more than earnings multiples (or P/FFO) in reverse (P/FFO is the standard earnings valuation metric for REIT investors and analysts).

Maybe instead of forming a "bubble," commercial real estate is simply becoming more aligned with the other fundamental asset classes (equity, fixed income and cash), making the case that real estate is no longer an alternative, but a core wealth creator.


On Thursday, I spoke with Donald Trump. He provided me with some insight into his vast experience in creating huge real estate wealth ( Forbes recently listed Trump's net worth at $3.2 billion and No. 139 on Forbes U.S. list of billionaires). It's clear that cap rates across all real estate sectors continue to compress as investors' search for yield in today's low-rate environment. Conversely, investors should consider the supply-and-demand fundamentals and how they impact cap rates.

Trump explains: "Today there are numerous sectors in the real estate world. It's important to pick the right sectors. For example, Miami is booming. Not because the U.S. is booming, but because South America is booming."

Last year, Trump acquired the Doral Resort & Spa in Miami out of bankruptcy for $150 million. The 800-acre resort complex includes four golf courses, 700 hotel rooms; more than 86,000 square feet of meeting space, featuring a 25,000-square foot ballroom, a 50,000-square foot spa, six food and beverage outlets, and a clubhouse. Trump is under way with a $200 million renovation strategy that is intended to restore the iconic property to its former prestige.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,164.95 -251.90 -1.45%
S&P 500 1,994.99 -26.26 -1.30%
NASDAQ 4,635.24 -48.1670 -1.03%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs