Fast Money’s Karen Finerman loves “bargain real estate.” But what conclusion did she reach on Maguire Properties (MPG)?

She likes “the dynamic of absolute forced selling.”

While I appreciate the contrarian perspective on a stock with a broken deal and discontinued dividend, I have to say it doesn’t look too good on the models I follow. Here’s how it looks:

• Earnings momentum: Neutral
• Earnings quality: Negative
• Price Momentum: Negative
• Free cash flow: Neutral
• Return potential: Negative

Disclosure: At the time of publication, William Trent has no financial position in the companies mentioned in this article.

With the end of the first quarter approaching, it is time to adjust the names in our Watch Lists. We will price all the new lists as of the close on Friday, March 30. Today we present our planned updates to the Large Cap Watch List (Track at Marketocracy).

Though less than the Small Cap Watch List and Mid Cap Watch List (Track at Marketocracy), there was still relatively high turnover in this list. 14 of the original 33 names made the cut for the new list (which was trimmed to just 26 names.) Part of the reason for the turnover was to reduce overlap between the lists. One third of the Mid Cap Watch List (Track at Marketocracy) names appear on each of the Small Cap and Large Cap Watch List (Track at Marketocracy)s, but there is no longer any overlap between small and large.
So without further ado, the names on the chopping block from the previous list are:

3M (MMM); Continental (CTTAY.PK); Mitsui (MITSY); Anheuser-Busch (BUD); ConocoPhillips (COP); Helix Energy (HELX); IndyMac Bancorp (NDE - Annual Report); Barr Pharmaceutical (BRL - Annual Report); Quest Diagnostics (DGX); Public Storage (PSA); ITT Educational Services (ESI); Equifax (EFX); Rent-a-Center (RCII); Kroger (KR); Ricoh (RICOY); First Data Corp. (FDC); Expeditors International (EXPD); and Keyspan (KSE).

The new list is:

We asked, but no one answered. So we are taking our own counsel and breaking our Watch List into three portfolios: Small Cap, Mid Cap and Large Cap. Each will be tracked against the relevant S&P index going forward from their collective inception date of January 31 (priced at the close of market trading that day.)

For your viewing pleasure, the Large Cap Watch List (Track at Marketocracy) (to be measured against the S&P 500) follows.

Astute observers will notice less overlap between this watch list and the names in the Small Cap Watch List and Mid Cap Watch List. This was not for lack of overlap, as the smallest S&P 500 name has a market capitalization of $600 million, which would allow for complete overlap with the Mid Caps if we chose. Instead we selected an arbitrary low of $2 billion for large-cap names, which cuts off five names that are actually in the S&P 500.
In addition, we will provide a “quick and dirty” analysis of each name, with a goal of one such analysis per day. As the name implies, the quick and dirty analysis will be incomplete. We are hoping you will join in the debate and fill the gaps in our analysis.

Sam Zell built the largest publicly traded real estate firms in Equity Office Properties (EOP) and Equity Residential Properties (EQR). After years of acquisitions to build the portfolio, he is now cashing out just as many have called a peak in the real estate market. Blackstone Acquiring Trust in Richest Buyout – New York Times:

The Blackstone Group, a private investment firm, said yesterday that it had agreed to acquire Equity Office Properties Trust, the nation’s largest office-building owner and manager, for about $36 billion.Equity Office, with some 590 buildings and over 105 million square feet of office space in major metropolitan markets, was created in 1976 by Sam Zell, a real estate tycoon who built the business through dozens of acquisitions that were worth, in aggregate, more than $17 billion. Last year, Equity Office acquired the Verizon Building on Sixth Avenue in Manhattan for $515 million.

Matthew L. Ostrower, an analyst at Morgan Stanley, called the proposed deal “a ground-breaking transaction for the real estate world in general and an earthquake for the REIT industry.”

Well, actually no ground is being broken as this is a buy- rather than a build- decision. Nonetheless, the fact that residential real estate prices have softened considerably is surely not lost on Zell, who may now feel that office properties have peaked in value as well. The article continues:

For Mr. Zell, one of richest men in America and the owner of more real estate than Donald J. Trump, the sale is an opportunity to cash out of part of the empire he built while working from his office in the old Daily News Building in Chicago. But the sale by Mr. Zell, who made his first millions in the 1970’s buying distressed real estate, may also signal that he believes the market may have peaked.

Just last month, Ross L. Smotrich, an analysts at Bear Stearns, wrote in a note to investors: “REIT’s have outperformed the broader market in each of the past seven years, putting valuations at the high end of historical ranges.”

The only real question is why would anyone want to sit on the opposite side of the table and buy a huge real estate portfolio when Sam Zell is selling. The article also answers that question:

Private equity firms are vying to hold the crown of having led the biggest buyout in history, and, with this deal, Blackstone will be able to do so at least for now.

What a great reason to invest. Yet it isn’t the first questionable buyout this year, nor do we expect it will be the last. Starting with massive buyouts of highly cyclical semiconductor firms and continuing to the largest ever real estate buy when most concede the market has topped, Private Equity funds are showing that they simply have too much money to invest. We highly doubt the future returns on private equity investments will even approach the levels of past returns, as the hot money is unlikely to find sufficient real value opportunities to be put to good use.

William Trent currently has a short position in put options related to Office Depot (ODP).