What's with This Sharp Pickup of Insider Buying in REITs?

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The stocks of real estate investment trusts are a shambles, but insiders are stepping up to buy their own shares at a faster pace than they have recently. According to

SNL Securities

in Charlottesville, Va. (a research firm, not a brokerage firm), insider buying at REITs has leapt in the past three quarters, to 3.3 million shares last quarter from 1.9 million shares in the first quarter. And compared with the first two quarters, which also included plenty of insider selling, the buying in the last quarter was much more solid, according to SNL research chief Paul Reeder.

The most striking example was

Duke Realty

(DRE) - Get Report

, whose executives and directors borrowed $37 million to buy 1.6 million shares. And

Sam Zell

recently doubled his stake in

Equity Residential

(EQR) - Get Report

by paying $9.1 million for 346,000 shares.

As with any insider buying, however, the difficulty lies in differentiating token purchases, for public relations purposes, from purchases made with conviction. "Some of this is posturing buying to instill confidence in the markets by saying, 'Our company is a good company,'" says

Chris Edmonds

,

TheStreet.com's

resident REIT expert. He cites, for example, Paul Nussbaum of

Patriot American Hospitality

(PAH) - Get Report

, who has "bought a bunch of his stock. While he's not buying it for his health, I'm not sure it's convicted buying. His stock is so depressed that any signals he can give that he's confident his company can survive is a message he has to get out."

Among the most noteworthy purchases, according to George Muzea of

Muzea Insider Consulting Services

in Reno, Nev., are in Duke,

Apex Realty Capital

(AXM)

,

Glenborough Realty

(GLB)

and

Nationwide Health Properties

(NHP)

. "These are legitimate buys by legitimate insiders," says Muzea, who owns Apex in his IRA and Duke outright. "This is quality buying. We look at the entire universe and these are the only ones that stand out." (Muzea sells his research only to institutions.)

CDA/InvestNet

, on the other hand, is impressed by purchases in

Felcor Lodging

(FCH)

,

Innkeepers USA

(KPA)

and

RFS Hotel Investors

(RFS)

.

But this warning: As Edmonds recently pointed out on

TheStreet.com

in his dispatches from the NAREIT conference, even many well-known value investors are shying away from REITs. SNL's REIT universe is down nearly 18% for the year vs. the broad

Standard & Poor's 500

index, which is up 11.6%.

"The REIT market will flounder," Edmonds says. Most pension funds still shy away from them, preferring direct ownership of the bricks and mortar to the liquidity of a fund. However, as the real estate market turns around, Edmonds says, "you'll begin to see a real separation of the good from the bad, and that will lead to consolidation and a number of public real estate companies that just go away by either going public again ... or by just going away."

In the case of the latter, sometimes insiders are the last to know.

Netbank Revisited

: A recent item

here suggested that

NetBank

(NTBK)

, an Internet bank, is headed for possible problems because of a portfolio that appeared loaded with subprime loans. However, in reporting its earnings earlier this week, the company said that its lower costs (vis-a-vis the Internet) help it "avoid the pressures of investing in risky foreign or subprime loans that we have heard so much about over the last few months."

CFO Bobby Bowers said the column was wrong to say that the average interest rate the company receives on its loans, based on its stated range, is 12.46%; he says it is 8.14%, and adds that the highest-yielding loan in the range, around 16%, was from one auto lease. "Eighty-five percent of our loan pool is single-family-related loans," he says.

He adds that the company's loan-loss reserve of 1.97% is well within the acceptable range for thrifts. The column had said the reserve level was below the 4%-6% norm of subprime lenders. "Our charter doesn't allow us to be a subprime lender," he says. "We are a thrift."

Herb Greenberg writes daily for TheStreet.com

. In keeping with the editorial policy of

TSC

, he does not own or short individual stocks. He also does not invest in hedge funds or any other private investment partnerships. He welcomes your feedback at

herb@thestreet.com. Greenberg writes a monthly column for

Fortune

and provides daily commentary for

CNBC

.