Displaying items by tag: reits

(New York)

The US stock market had a stellar 2017, with S&P 500 soaring 21.8% in the year. However, while still rising, REITs lagged far behind at just 8.7%. This year, the bad news has continued, with stocks overall up 6% and REITs down more than 2%. The underperformance has led to a debate amongst REIT managers as to why times are rough. Some think that it is because of the view that we are in a rising rate environment and the perception that there is a coming surge in new office buildings, apartment complexes, and storage units. Others, though, think that REITs are simply being forgotten because the big party has been in tech shares.

FINSUM: We do not think REITs are being forgotten, we just think they are getting less attractive because the both the macro cycle (higher rates coming) and their industry cycle (there is more inventory now) are shifting.

(New York)

It looks like the end of the road for one of the most popular and successful subsections of the REIT business. For the last decade there has been a veritable gold rush in self storage units. The business is a very profitable one and operators were able to charge gigantic rent increases over the last several years because of a lack of new supply. However, the market is now being flooded with new rental units, which could spell the end of the boom. There are also some demographic factors working against self storage, such as how Millennials collect less stuff than previous generations, and are likely to inherit large houses form their parents.

FINSUM:This is a succinct and well-conceived argument on the sector. That said, it does not look like performance will fall off a cliff, just that the best years are behind self-storage for now.

(New York)

Call it a “silent killer”, but there is a big threat coming to US malls that many don’t see coming. While the big bout of retail bankruptcies in 2017 hit the industry hard, a less headline-grabbing, but more widespread issue might cause bigger issues in 2018. That issue is that smaller mall tenants are likely to simply not renew their leases. Smaller operators between the big anchor stores actually generate more revenue for malls, and a decrease in tenancy would be a big blow to mall revenue. Smaller operators are actually better indicators of retail health because their lease terms keep them on the lookout for greener pastures.

FINSUM: Mall REITs could be in for a rough time here. While little companies won’t get much press, this pending increase in vacancy rates could hit malls hard.

(New York)

When people think of real estate investing, their most likely areas of focus is on homes, apartments, or various types of commercial buildings. But Barron’s has run a piece chronicling a very well-performing fund that takes an entirely different approach—investing in property where tenants cannot move, at all. To be clear, this means things like data centers, hydroelectric dams, cellphone towers, and lab space. Large casinos also have this immovable characteristic because of the investment it takes to create them. This type of investing approach has yielded very strong returns over the last few years.

FINSUM: Buying into properties where tenants can’t move creates a very strong defense against economic downturn. This is definitely a good hedge to use against many asset classes and can be achieved using REITs.