Given the worst commercial conditions in more than 20 years, commercial real estate and retail plays are best avoided, but there are exceptions, and Boston Properties (NYSE: BXP) is one.In general, most analysts expect downward momentum on rents to continue though at least early F2010, due to job losses in key urban markets.
Other analysts are also concerned that Boston Properties will not be able to occupy the 16-18% of space facing lease expiration by the end F2010, due to inadequate business formation and expansion in the U.S. economy.
Still, BXP has managed to lease much of its recently-empty space at adequate rates, and that fact, combined with the prudent decision to suspend construction on a planned 1-million-square-foot office tower on Manhattan's West Side, should keep BXP in a reasonable condition until macroeconomic fundamentals improve. The First Call FY2009/FY2010 EPS estimates for BXP are $4.63 to $4.60.
Moreover, Boston Properties' portfolio remains high-quality, and the market will take note of this fact after the commercial and residential hangover has ended.
The risks include (obviously) stagnating job growth in Boston Properties key urban markets, a hurdle which underscores why BXP is not an investment for low-risk investors.
Stock Analysis: Boston Properties' is a moderate-risk stock. Consider buying a 25% position in BXP now; then buy another 25% in three months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your BXP position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $37.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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