Both of you are right because you are focusing on different data. Re the weight put on the depreciation factor, not FFO's or NAV's which may not be linked to true bottom line market values,but which accountants have an imperative to construct and measure from the secluded comfort of a scolarly place separate from the reality of market forces.... In NYC a hotel most likely is worth more as a teardown if property yields more usable space in the new construction. In L.A. I passed buying some homes only to see it worth double as a tear down. The depreciation history for those properties were irrelevant. That is market forces can ( in a dynamic market) so outweigh the drips of measuring replacement cost over time in the markets I am familiar. Yet depreciation could be a factor in a market like the outskirts of Atlanta where market values tend to be very stagnant and purely based on actual net income, with almost no recourse to speculative redevelopment forces,..... so a better up to date infrastructure (new appliances, walkways and roofs) would in theory reduce yearly capital replacements for many years and be of major concern to a new investor to consider.
I own a unit in L/A. where I try to max out depreciation which represents an additional 1% overall return, yet in fact nothing significant depreciates when measured over the 20-30 year history of these types of buildings, in favored markets.
So to get more to the point , it would take a long analysis of the exact portfolios of these REITS to measure the impact of depreciation on their books, as it (depreciation) can mask and undervalue the actual value based on where those properties are located.
