Income investors and many wealthy clients have struggled to find the outlet post-pandemic for relatively safe capital accumulation, but real estate investment trusts are that release valve. Reflation trade, stimulus-driven output in the economy, is driving a boom in commercial and residential properties. Reopening of the parts of the economy is driving REITs like EPR Properties, which hold movie theaters, ski resorts, water parks, indoor skydiving. It’s not limited to just adventure opportunities, data centers, cannabis cultivation, and crypto mining facilities are all burgeoning opportunities in REITs. David Auerbach of World Equity Group says that capital raising is ‘in vogue in the REIT sector because they proxy traditional capital appreciation vehicles. Ground leases in particular are one of the best investments in this sector. Along with additional measures that can be taken for a tax advantage, ground leases offer the upside of equity with maturity risks and capital structure to bonds.
FINSUM: The flight to safe assets is driving a groundswell of opportunities in REITs. With the economy reopening, and stimulus pumping through it, REITs are an opportunity to hit the safe return of bonds with the equity upside.
Two of the biggest problems facing many investors are how to handle potential inflation and taxes but…see the full story on Magnifi’s site
Whether investors—or Jerome Powell—like it or not, inflation is rising, and is as high as it has been in a generation. Sure, it could prove temporary, but in the near and medium term, investors are worried about it, which means it will be dictating returns. How to hedge inflation is a question that investors haven’t had to worry about in some time, so it is worth noting that REITs have traditionally performed very well in inflationary periods. Since many leases are tied to inflation, rents tend to rise directly in line with inflation, providing an excellent hedge.
FINSUM: REITs are not as well appreciated as an inflation hedge as some others asset classes, but that is exactly why they might be a great buy right now.
Here is a confusing idea: workers are headed back to the office after a year away, but this is exactly the time to stay away from office REITs. One line of reasoning is that buying office REITs now, while prices are depressed, means there will be plenty of upside. However, the issue is that many companies are planning on keeping workers remote indefinitely, as remote work has gone much better than expected, according to many surveys. Office REIT bulls admit that may be the case, but counter than because of the pandemic, employers will want more square footage of office space to allow for more space between workers, helping offset the loss of total workers in the office. Critics say vaccines are working well so extra space will not be needed.
FINSUM: Buying into office REITs now is highly risky strategy, but one that could have major upside if the office market returns strongly.