11-3-00                                                                                           Vol. 3: No. 11 RealtyStocks’ Observer If you're not receiving this free monthly e-newsletter, please register. Plan a Great Ski Trip This Winter See ParkCityTownhome.com Monthly Feature: TIMES A CHANGE'N For Real Estate Technology A. Last Weeks Realty Technology Conferences B. Election Influence C. Tech Corner D. Large Cap REIT Performance E. Equity REIT Performance F. Mortgage REIT Performance G. Realty Corporations H. Real Estate Mutual Funds (REMFs) A. LAST WEEK's REAL ESTATE TECHNOLOGY CONFERENCES No one has ever accused real estate of being a leader in technology. As dot-com's are dropping like flies after a Raid attack, apparently the real estate technology industry has not fully realized the stark reality behind their future. The train has pulled out and has left most of these companies at the station. However, it did not seem to affect the record numbers for attendees and exhibitors at both the PikeNet Conference in New York and the Inman Real Estate Connect Conference in Santa Clara both held last week. The respective attendance and number of exhibitors for PikeNet featuring commercial real estate was about 1,000 and 100, and for the Inman emphasizing residential real estate, about 4,000 and 125. This may be the all-time peak in the number of exhibitors for these conferences. The doom and gloom about real estate technology and Internet companies (RETICs) was capitualated at the end of the week during the Inman conference by the "grave dancer" himself, Sam Zell. Heading up the largest office and apartment REITs in the country (EOP and EQR), Mr. Zell is known for his shrewdness and ability to anticipate market changes. Still, having attended nearly all of these conferences over the last few years and observing what seemed to be a more somber mood to me, there was still much optimism. For many, there still seemed to be an attitude that dot-com stocks could eventually bounce back and an IPO exit strategy was still possible. However, in his talk, Mr. Zell busted the bubble holding this belief predicting that half the companies exhibiting would be gone in a year or two, and possibly a quarter or less would remain in three years. A more dire attitude was pronounced by comments from the founder of Real Estate Connect, Brad Inman, who predicted in a recent news release that, "There are a hundred business plans and companies operating today, but in a year it will be down to seven or eight." Are things really so bleak for real estate technology companies? Can over a billion dollars poured into these companies be ready to evaporate? Not everyone is such a grim reaper. Afterall, we have identified several funds for real estate technology investments, primarily oriented to commercial properties, that plan to invest several hundred million dollars within the next couple of years. A problem though, is that these investments will not be scattered through scores of companies, but probably concentrated in only a dozen or so firms. It therefore seems inevitable that there will be a great deal of consolidation and failures involving many RETICs in the coming months. The most recent casualty is Mortgage.com which went public only about a year ago. (See Tech Stocks.) A more detailed overview of the noted conferences with a list of those firms exhibiting at each, a summary and to learn more about Mr. Zell's speech and the money sources for real estate technology will be available free next week in a separate article to all Members, and to Non-members for a modest fee.   Top B. ELECTIONS ARE FINALLY HERE Local and federal elections are upon us and, depending upon how we vote, our government may change a little or a lot. In a recent newsletter we asked about the feelings of our readership if it would matter if Gore or Bush were elected. Unfortunately, our ISP was unable to set up a special e-mail address for responses in a timely fashion, so we are unable to share those results. Whomever is elected to President, however, some experts claim that is important for the opposite party to control the legislature in order to cause less government interference and continue to propel our economic expansion. No doubt the financial markets will tell us how they view our economic prospects beginning the day after the election. Current sentiments seem to indicate that a Gore victory is more bearish than a Bush win. But longer term, it will more likely depend if one party winds up controlling the federal government and how they proceed. Regardless of what party you favor, be sure to vote!   Top C. TECH CORNER Supporting the views of Zell and Inman as mentioned above, a major real estate tech stock casualty occured this week. Mortgage.com (MDCM) has dropped to under 10 cents a share on news released October 31st that it was getting out of the Web business and laying off over 80% of its 618 employees. It attained a high price of $22.75 in August, 1999, shorty after its IPO. This failure places more doubt on the viability of the online lending market and more scrutiny on similar firms such as E-Loan (EELN) and LendingTree (TREE). It also creates a more uncertain future for not only other struggling public RETICs, but other private firms that have been hoping for a stronger public market in this area. While most public RETICs are struggling, HomeStore (HOMS) is developing into a residential real estate technology goliath. It enlarged itself by gobbling up Move.com, a division of Cendant (CD) for a stock purchase that amounts to over $800 million. Move.com was unable to successfully debut as an IPO, but found a strategy that allows its parent Cendant (the owner of Century 21, Coldwell Banker, ERA, Days Inn, Ramada, Avis...) to reduce debt, increase cash flow and pursue other acquisitions. The news created a one day surge of over 20% in HomeStore's price last Friday and helps to solidify HomeStore as the RETIC juggernaut and may give it more of a lead over its main rival, Microsoft's HomeAdvisor. Mortgage.com and Move.com are two examples of the future of RETICs. They follow the lyrics of a song that goes. "...Only the strong survives...", and, so will go the future of many real estate tech firms. Choices of many other similar firms will be limited to either attrition or acquisition. This current environment is one more fitting for todays top dogs to become stronger and more dominant. It does not mean, however, that an emerging tech company will never be able to challenge some of the largest REITs in (market value) size, or the current leaders such as HomeStore or CoStar. But it will be much more difficult. More shakeups or strategy changes among RETICs have recently been announced. This Friday, PropertyFirst, a private commercial listing service, announced a reduction in its work force by over 25% to 132. Early this week, VISATAinfo (VINF) announced an integration plan with VerticalNet (VERT). Internet Pictures (IPIX) announced a reduction in its workforce last month and a reogranization. Expect more layoffs and strategy changes among both private and public RETICs as they try to march to a new mandate of profitability now required of investors and lenders instead of just greater revenue growth and increased market recognition. Not all news is bad for RETICs though, private e-procurement firms FacilityPro and SiteStuff were fortunate to receiving committments for about $30 million each in funding from two consortiums, Constellation and Octane, respectively. The support of these and other consortiums, and strategic alliances with large firms, will become increasingly important to the success and survival of RETICs.   Top D. LARGE CAP REIT PERFORMANCE For October, the 20 largest REITs, measured by capitalized market value, decreased -3.0%. This is more than double the average for all Equity REITs. The best performing large cap REITs were Apartment Investment & Management (AIV), rising 2.5%, and Duke Realty Investments (DRE), increasing 1.9%. The laggards were Prologis Trust (PLD), down -10.6% and General Growth Properties (GGP) down -8.9%. (Please see Large Cap REITs.)   Top E. EQUITY REIT PERFORMANCE October was nearly a complete reversal from a month earlier. Almost all of the property groups were down instead of up, and Equity REIT prices were off -2.38%. The only group that was in the positive was Mobile Home Parks with a gain of 2.81%. The worst performing group, with a loss of -6.99%, was Retail Malls & Centers. The best performing Equity REITs for October were Tarragon Realty (TARR) and LTC Properties (LTC), up 15.5% and 5.7%, respectively. The worst monthly performers were Cousins Properties (CUZ) and Century Realty Trust (CRLTS), down -38.6% and -14.0%, respectively. The best performers YTD were Wellsford Residential Property Trust (WRP) and Urban Shopping Centers (IOT), up 109.6% and 76.7%, respectively. The worst performers for the year were LTC Properties (LTC) and National Health Investors (NHI), down -58.5% and -58.0%, respectively. (Please see Equity Gainers and Losers.).   Top F. MORTGAGE REIT PERFORMANCE With interest rates declining, a more positive environment continued for Mortgage REITs. Almost all property groups pushed into positive territory in October with overall price increases of 0.98%. Residential & Commercial Mortgages posted the worst mark with a -7.11% loss. The best performing Mortgage REIT group was Commercial Mortgages with a 5.18% gain. The best performing Mortgage REIT for October was Clarion Commercial Holdings (CLR), up 23.1%. The worst monthly performers were Dynex Capital (DX) and Novastar Financial, Inc. (NFI), down -19.2% and -13.0%. The best performer YTD is Capstead Mortgage Corp (CMO) up 128.4% YTD. The bottom YTD performers are Dynex Capital (DX) and American Residential Inv. Trust (INV), down -79.6% and -58.5%, respectively. (Please see Mortgage Gainers and Losers.)   Top G. REALTY CORPORATIONS Realty and Housing Corporations lost -5.37% for October. This sector was brought down largely by Tech & Net, down -28.6%. The group gaining the most for the month was Resort Co's , up 4.70%. The best individual monthly performer was Lodgian, Inc (LOD) with a large gain of 34.9% due to acquisition offers. The worst monthly stocks are Mortgage.com (MDCM) and Homeseekers.com (HMSK), down -88.5% and -70.2%. The best performers YTD were SBA Communications Corp (SBAC), up 167.3% and NVR Inc (NVR), up 116.5%. For the year, the worst performers were Mortgage.com (MDCM) and Homeseekers.com (HMSK), both down -94%. (Please see Realty Corp. Gainers and Losers.)   Top H. REAL ESTATE MUTUAL FUNDS (REMFs) The realty fund sector cooled down in October with a loss of -2.48% for 107 funds. None of the funds were positive for the month, but Davis Real Estate and Invesco R. E. Opportunity, the best performers, were only off -0.4% and -0.8%, respectively. For the year, REMFs still continue to post very attractive total returns averaging 16.51 %. The best performers year-to-date include Third Avenue, Security Capital U.S. Real Estate and SSgA Tuckerman all up between 25.5% and 23.5%. (Please see REMFs.)   Top Stock Changes - within RealtyStocks: Cousins Properties (CUZ) had a 3-for-2 stock split.   Top Note: All gains or losses regarding Realty Stocks are price changes only; dividends are excluded. Disclaimer: The material provided herein should not be taken as endorsements or recommendations to invest in a stock, fund, a group of stocks or other securities. No guarantee can be made as to the expected performance of such investments. Investors should consult all available information, including data external to RealtyStocks and associated Web sites, and exercise own best judgement before making any investment decisions. The author may have equity positions in some of the companies covered in RealtyStocks, which may change from time to time, and will divulge such information upon request   Top InRealty Sponsors Inquire about our special advertising banner promotions! E-MAIL: stocks@inrealty.com Copyright © 2000, WebVisers Inc. All rights reserved .