Economy
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The pandemic affected the economy in a variety of different ways, but combinations of unemployment and work from strategies caused a mass exodus from major American cities and New York has been no exception. However, UBS Group AG says that is about to change. They are recommending investments into REITs, e-commerce ETFs, and fintech/smart mobility in order to be a part of the comeback. A combination of higher vaccination rates and more tolerance for state and local governments to avoid shutdowns will help spur New York's comeback. They particularly cite Manhattan’s REITs for having a fruitful future.
FINSUM: More jobs than ever have moved fully remote and it's questionable whether the city lifestyle will be as appealing if it's not necessarily a requirement.
House prices are at all-time highs, and since a small slump at the start of the pandemic have really seen rapid growth but are they in a bubble? Long story short, probably not, because a few key metrics are keeping them elevated. Federal Gov assistance programs have diminished the foreclosure numbers. Added to that the trillions poured into countless QE and MBS purchases have made mortgage rates be at near all-time lows. Finally, there appear to be real shortfalls in different housing markets, and the pandemics work from anywhere policies are having strong growth in places like Boise, Austin, and Orlando. All of these factors come together to say that there is a relatively low risk of a housing bubble but to keep your eyes peeled.
Finsum: The Case Shiller home price index is at an all-time high but more importantly growing at an all-time rate, this is getting close to bubble territory but it is lacking the speculative component.
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Everyone and their dog is searching for viable alternatives because omicron has the stock market skittish and there’s absolutely no yield in bond markets. This has many investors turning to REITs, but how do you find the outperformers. There are six key metrics to look out for: a high fund from operations, total cash from operations growth, high liquidity ratios, accelerated dividend growth rates, a good-sized market cap, and finally price gain. These are the most important factors when evaluating REITs. Some of the best examples in these leading categories are Prologis, Essential Properties, Innovative Industrial Properties, and Life Storage Inc.
FINSUM: Alternatives could have their most promising year yet with all the outflows from the bond market coming in.
The housing market has outpaced nearly all expectations as prices are up a staggering 17.7% over the last 12 months. Some bears said this pace has to slow and that simply put there aren’t enough buyers to keep demand boosted this high, but Goldman Sachs sees it differently. They are projecting home prices to grow at 16% over the next year. They believe millennials are just hitting their stride in the buyers market and that a woefully short supply will keep prices elevated. New home construction has been far too sluggish in the post-2008 environment as investors are skittish, but low-interest rates give many the opportunity to buy. All of this puts the U.S. at an estimated 4-million home shortage, which has Goldman extending the horizon for house price growth through 2023, projecting another 6% increase. Others aren’t as bullish; CoreLogic and Freddie Mac are projecting 2.2% and 5.3% respectively.
FINSUM: Extremely low interest rates and glimpses of inflation could prop up home prices for the time being, as excess money has tended to flow disproportionally into assets like real estate.
(New York)
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.