How Contagious This Evergrande Situation Could Be

Well, yesterday could have been worse. The Dow did drop well over 900 points in the afternoon, after all. And the Nasdaq’s dive took it down more than 3% for a good, long stretch of time.

But they “recovered” enough by the end of the day so that:

  • The S&P 500 only lost 75.26 points, or 1.7%.
  • The Dow only lost 614 points, or 1.78%.
  • The Nasdaq only lost 330.06 points, or 2.19%.

As I write this, investors seem content to treat Monday’s market action as a buying opportunity. All three major indexes are up significantly.

But the headlines are much more mixed, as well they should be.

We just don’t know yet if yesterday was indicative of a serious turnaround in market sentiment or not. Right now, most experts are saying that China won’t likely bail Evergrande out – the company that inspired yesterday’s drama.

Which means short-term drama at least, no matter the ultimate wisdom of that move. (Or lack thereof.)

Goldman Sachs Managing Director and Chief China Economist Hui Shan sent out a research note yesterday saying:

The danger is precisely the contagion effect, should a default occur without clear “ring-fencing” of spillovers to other parts of the real economy or financial sector. Events over the past week suggest risks of inching toward that direction.

That and:

Equities and bonds issued by other developers with high leverage have sold off. Protests at Evergrande offices across China may cause reluctance among potential homebuyers more broadly. Financing pressure faced by property developers has contributed to failed land auctions in a number of cities.

And while White House Press Secretary Jen Psaki correctly pointed out yesterday that Evergrande is “overwhelmingly centered in China,” the problem is…

So are the production bases of many major U.S. corporations.

The World According to REITs

So that’s the kind of consequences we’re all left to wonder this morning on a global level. Fortunately for us though, there’s a lot we do know for certain when we zero in on our particular focus.

Real estate investment trusts (REITs) were extremely active yesterday, with 16 different companies making the news. And that’s not even counting such announcements as Park Hotels & Resorts (PK) setting a date for its Q3-21 earnings results release.

Here are three of those updates:

  • Corporate Office Properties (OFC) signed a 20-year lease with the U.S. government at its Redstone Gateway in Huntsville, Alabama. The to-be-built 206,000 square-foot space will cost OFC $60 million to construct and should be ready to use in Q1-24.
  • Gladstone Commercial (GOOD) signed a five-year, three-month lease with a national credit company. That tenant now occupies half of its four-story office building in Austin, Texas, consisting of 320,000 square feet.
  • Four Corners Property Trust (FCPT) acquired five well-located Caliber Collision properties across Ohio for $4.1 million. Each one is corporate-operated and net-leased. Their weighted average contracts remaining is nine years, and they were priced at a 6.6% weighted average going-in cash capitalization rate.

Oh, and last but not least, we now have our answer about how REITs fared yesterday. All things considered, I’m pretty impressed.

(Source: The Daily REITBeat)

Brad Thomas is the Editor of the Forbes Real Estate Investor.

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