Associated Estates (NYSE:AEC) Avalonbay (NYSE:AVB), Essex Property (NYSE:ESS), Home Properties (NYSE:HME), Sovran (NYSE:SSS), U-Store-It Trust (NYSE:YSI) Top FBR Picks in Sector

Commenting on commercial real estate, FBR Capital give its top picks and those they believe will lag going into 2011, their top picks include Associated Estates Realty (NYSE:AEC) Avalonbay Communities (NYSE:AVB), Essex Property Trust (NYSE:ESS), Home Properties (NYSE:HME), Sovran Self Storage (NYSE:SSS), and U-Store-It Trust (NYSE:YSI).

FBR gave its reasoning, saying, "Commercial real estate looks to start 2011 in a curious place: pricing is robust in both private and public markets, investor appetite for yield continues unabated, and the cost to do business is at historic lows; just below the surface, however, fundamental recovery is ephemeral, at best - tainting outward market exuberance with an undercurrent of worry. As we start the year, we maintain positive views of most segments within our coverage universe. We believe that once again the single biggest risk lies within the credit markets, as an unsustainably low rate environment props prices, earnings, and hopes. That said, we continue to underwrite a low rate environment in the near term, given the stubbornness of the current economic malaise and reactionary monetary policy. We expect investors will continue to look a blind eye at this risk given the hunger for yield, which is especially beneficial to the finance and mortgage names."

"In this context, our top picks are generally focused on earnings growth, attractive (safe, in our view) yield, and pockets of fundamental recovery. We expect most of the group to remain in an expansionary period. Cap rate compression is likely to continue at the “B/C” asset quality level, while the “A” quality assets more or less stabilize. Along these lines, signs of further market bifurcation are likely in some sectors. We expect fundamental improvement to continue overall, with outright inflection in the short lease arena (lodging, storage, apartments), while longer lease recovery lags (office, industrial, retail)."

"Apartment and self storage. We maintain a positive view of the trajectory of multifamily and self storage fundamentals; however, we do remain cautious on the basis of valuations, given pricing today that is being propped by government-sponsored financing and aggressive core revenue performance expectations. We expect the short-lease REITs to remain in an expansionary period so long as access to low-cost capital remains, while operations continue to improve steadily. Overall, we expect aggregate returns for the multifamily stocks to be in line with the RMZ (+11% for the year). Our top picks within the sector include Associated Estates Realty,Avalonbay Communities, Essex Property Trust, Home Properties, Sovran Self Storage, and U-Store-It Trust; we expect Camden Property Trust (NYSE:CPT), Equity Residential (NYSE:EQR), Mid-America Apartment Communities (NYSE:MAA), and Public Storage (NYSE:PSA) to lag."

Associated Estates closed Monday at $15.22, down $0.15, or 0.98 percent. Avalonbay closed at $112.17, down $0.95, or 0.84 percent. Essex Property ended the day at $113.20, up $0.47, or 0.42 percent. Home Properties was at $54.77, up $0.07, or 0.13 percent.
U-Store-It Trust closed at $9, up $0.21, or 2.39 percent.