Update 2:45 PM
Update 2 4:41 PM

I posted about REITs sliding yesterday. It’s happening again today. The news about Macerich and Developers Diversified doesn’t seem to be helping. DDR is down almost 12 percent and Macerich down nearly 16 percent as I write this. But the declines are across the board. General Growth is the only retail REIT in positive territory up 3.3 percent for the day. The losses are not isolated to retail REITs. The Morgan Stanley REIT index is down 9 percent today. But the losses do seem to be more acute at many retail REITs.

I imagine the grim retail sales figures are playing into this. But is there more at work?

Update: I just did a little math. The Morgan Stanley REIT index closed on Friday, Sept. 19 at 913.61–it’s highest point since June. That weekend, of course, was when the credit crunch morphed into full-fledged crisis mode. It was the weekend Lehman wasn’t bailed out, Bank of America agreed to buy Merrill and just a couple of days before the government nationalized AIG. Since that point, the Morgan Stanley index has lost about 34 percent of its value. (It’s now down about 7.4 percent for the day, up a bit from its session lows). In that same time period, the Dow Jones Industrial Average has dropped 22 percent.

The question is, does that make sense?

Update 2: The market ended the day on a major down note. The Dow Jones Industrial Average fell 7.9 percent. The Morgan Stanley REIT Index ended up down 12.9 percent. The Morgan Stanley REIT index had its highest ever close on February 7, 2007 at 1,233.66. At today’s close it stands at 565.42. That means its dropped 54.1 percent.

If REIT values are a proxy for commercial real estate values–which is something I’ve heard argued–than that would mean commercial real estate values have been cut in half in the past 18 months. But, I don’t think that makes much sense.

Two more REITs now have seen executives forced to sell stock because of margin calls. General Growth got hit with a ton of selling because of margin loans, which eventually forced its CFO to step down. Now it has come to light that Macerich CEO Art Coppola and Developers Diversified Chairman and CEO Scott Wolstein both have had to sell stock because of margin calls. Coppola sold $13.9 million in shares while Wolstein sold $20.1 million in shares, according to company SEC filings.

Part of the problem at General Growth was that the firm had asked its way on to the short-sell ban list and then saw its executives sell shares. That created the appearance of impropriety. It made it seem like the company was protecting its share price while executives dumped stock. That’s not necessarily what was going on, but it certainly didn’t look good and is one of the reasons General Growth’s share price has tumbled so much.

That’s not the case at Macerich or Developers Diversified. Instead, the problem here seems to be that the share prices have fallen by so much that they forced margin calls. In Macerich’s case, according to a company SEC filing, Coppola had no choice in the matter.

There’s one other interesting tidbit on the Macerich front, however, which is that even before the margin call, several Macerich executives sold about $20 million in shares in recent weeks, most of which were held by the executives in custodianships for their minor children. At Developers Diversified, meanwhile, a company executive vice president was also forced to sell shares worth $600,000 because of a margin call.

Arthur Coppola, Macerich’s chairman and chief executive, unloaded 345,173 Macerich shares on Thursday and Friday for nearly $13.9 million to cover a collateral requirement on his line of credit with his broker, according to Securities and Exchange Commission filings. The sales amounted to 44% of the Macerich common shares held by Mr. Coppola.

Also last week, Scott Wolstein, chairman and chief executive of Developers Diversified, sold more than 1.2 million shares for roughly $20.1 million to cover margin calls, SEC filings show. The sales cut Mr. Wolstein’s holdings by 45%.

Even though the broader stock market is relatively flat–the Dow is down about 1 percent as I’m typing this–REIT stocks are getting killed. The Morgan Stanley REIT index is down 8 percent right now. I have no idea why REITs are down so much. Any thoughts? I mean, I did link to two possible reasons earlier today, but that can’t be the only explanation. … I don’t think.

For example, the owners of the 1,200-unit Riverton apartment complex in upper Manhattan had counted on converting deregulated apartments to market-rate rentals at a faster pace. But when that didn’t pan out, they had trouble servicing their debt and were recently in danger of defaulting on their $225 million mortgage.

Trepp has uncovered 1,385 of these thorny commercial loans, totaling some $45 billion. The biggest portion is office properties (31%), followed by retail (25%).

General Growth needs $1.7 billion in the next six months to service its debt, much of it highly leveraged buys made during the boom. The company might be forced to put itself up for sale.

Finding loans to buy or develop a property is just as tough as refinancing one. Wide bond spreads mean that the source of funding that commercial real estate firms have used for the last decade — investment banks — “are more or less off the table,” Clancy says.

Sales volume in commercial real estate is down over 70% from last year, RCA says. A growing number of properties changing hands are distressed, if not in default.

Link.

Yesterday I linked to a story from the New York Times suggesting that it might be time to look at REIT stocks. Today, Business Week’s Hot Property blog has a counterargument.

But with the stock market now showing some life is it time to buy these real estate-related firms?

No, says Michael Kirby, director of research Green St. Advisors. Green St. follows real estate investment trusts exclusively so when Kirby says ‘don’t buy them’ it means something. Overall his buy recommendations have returned 27% annually since 1993. His sell recommendations have appreciated .3%. The average REIT returned 12% on average over that time, according to the National Association of Real Estate Investment Trusts.

Kirby’s beef is that relative to corporate bonds; REITs still don’t look like a good deal. REITs are presently yielding 5.5% versus 7.8% for corporate debt. Moreover, REITs look expensive on a price to earnings basis, trading at 18 times earnings versus 12 times for the S&P 500.

Danger looms, particularly for office REITs, as some $185 billion in mortgage debt will need to get financed in 2010-12. It could trigger massive defaults, similar to what happened in the housing market.

I have a feeling we’re going to start seeing more announcements like this. If retail REIT shares are trading at a discount–which they arguably are even after rallying some today–then there should be some takeover opportunities in the market.

An affiliate of commercial real estate firm Compson Development offered to buy Agree Realty Corp for about $328.7 million, more than two years after it had made a higher bid that was shot down by Agree Realty.

The latest offer represents a price of about $27.50 per share — 25.3 percent more than Agree Realty’s Friday closing price of $21.95. Shares of Farmington Hills, Michigan-based Agree Realty were up more than 12 percent at $24.61 in late morning trade Monday on the New York Stock Exchange.

Compson Development affiliate Compson Holding Corp had tried to buy Agree Realty for $38.75 per share in cash more than two years ago, but was spurned as Agree Realty believed the offer was “not in the best interests of the shareholders,” Compson president Michael Comparato said in a letter to Agree Realty’s chairman. As of market close on Friday, the value of Agree Realty’s shares was 43 percent below Compson’s original offer, and Agree’s board must immediately find ways to enhance shareholder value, Comparato said in the letter.

“One of many alternatives available to the board of directors to maximize shareholder value would be to reconsider a sale of the company,” Comparato said.

Link.

Inland American, which last month bought shares in CapLease Inc., has purchased shares in another REIT. This time it’s Ramco-Gershenson Properties Trust, according to an SEC filing from Friday. Inland now owns 1,652,887 shares in Ramco-Gershenson, about 9 percent of the company’s outstanding stock.

Updated at 4:53 PM

Wow. What a day. The Dow was doing well all day and then at the end it really took off. The net result is a gain of more than 900 points. That’s the largest one-day move in either direction. Percentage-wise it went up more than 11 percent, ranking it as one of the top five days of all time.

Just about every retail REIT gained ground today as well with about half a dozen or so gaining 10 percent or more. PREIT was the biggest gainer, jumping 19 percent today. General Growth was also up big gaining 17 percent and moving from $4.82 per share to about $5.60 per share.

The results were similar around the globe with stock markets in many countries posting huge gains. I guess people really like the plan that the G7 and that Secretary Paulson have come up with to finally stabilize the financial markets. We can only hope that these gains hold and that things continue moving up. Given how volatile things have been, however, I have a bad feeling that we’re not quite out of the woods just yet. Most alarmingly, the TED Spread, the difference between the interest rates for three-month U.S. Treasuries contracts and the three month Eurodollars contract, didn’t move much today and remains at 4.57. In normal times that spread is less than 50 basis points.

Update: It occurred to me that even though the stock market was open today, the bond market was not. That could be a reason the TED spread didn’t move as much. We’ll have to keep an eye on it tomorrow. If there’s signs of relief there, perhaps we’ll get over the hump in the credit crunch and things will begin easing a bit.

For years, REITs were considered a safe investment and less volatile than other stocks. During the bull run in recent years when REIT valuations rose considerably, the sector became prone to wider swings in stock prices. Today, however, the New York Times has a piece illustrating that declines in the REIT sector are now less than the broader market. REIT stocks are way down from their 52-week and all-time peaks. But what the experts in this story are arguing is that within the stock universe, REIT stocks–namely self-storage and apartment companies–may represent a safer bet than other sectors.

But the analysts offered another simple answer as well: safety. “They want to hide there right now,” Louis W. Taylor, a managing director at Deutsche Bank Securities, said of investors’ mind-set.

REITs — publicly traded companies that disburse most of their income as dividends — are often considered a good portfolio diversifier, and a haven in turbulent times, because they typically have a “low correlation” with broader markets. In other words, REITs might rise as the overall stock market declines, as happened in the third quarter, or not fall as precipitously.

But investors also see the problems in the housing and mortgage markets, which helped prompt the recent burnout on Wall Street, as particularly beneficial for self-storage and apartment companies, analysts say.

“A lot of households are really concerned about the future of housing prices and mortgage interest rates, so they’re going to wait it out and rent,” said Brad Case, the vice president for research and industry information at the REIT trade association, “and while they’re renting, they need a place to store their extra stuff.”

Several REITs have arranged new financing deals in the past couple of weeks. I thought it might be interesting to run a little comparison of the terms. Here’s what I’ve come up with.