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Cramer’s Call on Cali Commercial Real Estate

Cramer on Thursday continued his weeklong California coverage with a focus on commercial real estate. This industry was supposed to be on the verge of collapse nationwide, but it’s making a turn in the Golden State.

Cramer is directing viewer attention to California because he sees a coming rebound there. Sure, the state is suffering through some budget troubles, but the economy is starting to pick up. Already this week he’s recommended stocks in sectors as diverse as retail, the banks and housing.

So why commercial real estate? Because while the bears wait for that expected collapse, the stocks of the real estate investment trusts that own this property have soared higher and higher. Also, the situation in mixed office, industrial, retail and apartment properties is getting better, Silicon Valley is on track to have a better year than 2009, and financing for these deals has returned. Not to mention, the apartment market is expected to improve throughout the year, led by San Diego.

There are a lot of ways to play California’s commercial real estate market, Cramer said. For apartments, there’s BRE Properties and Essex Property Trust , both of which offer 4% dividend yields. In retail, there’s Macerich , the biggest Western mall owner and manager, which yield’s 6% though about 90% of that is paid in stock. And there’s also Regency Centers , a shopping-center REIT that yields 4.9%.

Still, Cramer thinks that office and industrial properties right now offer the best opportunities. The safer bet here is PS Business Parks , but Cramer’s favorite is Kilroy Realty .

KRC owns and manages offices and industrial buildings in Southern California, with the offices making up 88% of the business. The company is 100% California, operating mostly in Los Angeles and San Diego, making it a great pure play on the state.

What Cramer likes, though, is the differential between KRC’s current occupancy rate of 82.8% and its historical average of 93.1%. That means this company has the most room for improvement, and the most potential upside when California rebounds. And there’s a 4.3% dividend yield that Cramer thinks could go higher as business improves.

Oh, and according to the two-year chart, Cramer said, you’ve got “years of huge appreciation ahead” for this stock.

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