Nareit's REIT Report Podcast

REITs are making gains across the board in adopting practices that enable investors to make informed decisions taking into account environmental and social strategy and performance, says Jessica Long, Nareit senior vice president for environmental stewardship and sustainability.Speaking on the REIT Report, Long noted that Nareit’s latest REIT ESG Dashboard shows that 100% of the top 100 REITs are reporting publicly on ESG in some manner. “REITs really are demonstrating that as an industry, real estate is taking seriously the requests from investors and regulators and other key stakeholders that are saying that ‘these environmental and social issues are important to us and we want to understand how you're managing those things.’”One data point in the latest dashboard shows that 89% of REITs are reporting on their climate risk policy. Long noted that these percentages show that REITs “are out ahead on this….and putting in place policies and procedures and looking at the metrics to help better manage this risk and understand what's happening within a REIT’s real estate portfolios.”

Championing change related to diversity, equity, and inclusion matters requires organizations to actively commit people and resources to the task, to clarify that change is everybody’s responsibility, and to build coalitions wherever possible, says Adjoa B. Asamoah, an advocate of racial equity and an award-winning social impact strategist.Asamoah, a keynote speaker at Nareit's REITwise: 2023 Law, Accounting & Finance Conference, developed the legislative strategy for the CROWN Act and leads the movement on behalf of the CROWN Coalition to end race-based hair discrimination.Speaking on the Nareit REIT Report, she described the CROWN Act as a “blueprint for championing change,” and added that it has been “groundbreaking on so many fronts and really shows that people can have a role in creating the society that they want to live in.”

A record number of products still under development in the life sciences sector continue to provide tailwinds for the industry, despite volatility in the broader macroeconomic environment, says Matt Gardner, CBRE’s U.S. life sciences leader.Speaking on the Nareit REIT Report, Gardner noted that a bull run of investment in life sciences, that started in 2015, “left us with an incredible number of products in development. And those are still there.”Gardner stressed that the life sciences industry doesn’t follow broader economic patterns. “If a product takes 10 to 15 years to develop, the investment in that product isn't going to follow a seven year economic cycle, which is why we look at this record number of products in phase two and phase three clinical trials as such an important sign of the industry's overall wellbeing. The science is still there,” he said.

Residential REITs offer investors a safe option amid current volatility, with strong balance sheets, leasing tailwinds, and the continued shortage of affordable starter homes among the key factors supporting growth in the sector, says David Auerbach, managing director at Armada ETF Advisors.Armada’s flagship product HAUS is an exchange traded fund (ETF) comprised of 25 pure play residential REITs in the multifamily, manufactured housing, single-family rental, and senior housing segments. It recently celebrated its one year anniversary of being a publicly traded entity.Speaking to the Nareit REIT Report, Auerbach noted that most REITs in the residential sector were able to lock in attractive long-term debt and are well-capitalized to handle the current interest rate environment.As for leasing and rent growth trends, Auerbach pointed to continued strength in many of the Sunbelt markets, while there are signs of residents returning to some of the coastal markets as well.

Farmland Partners Inc . (NYSE: FPI) President and CEO Luca Fabbri says there is “huge potential” to grow the share of farmland assets within institutional investor portfolios, especially given the sector’s risk return profile, asset appreciation, and inflation protection benefits.A co-founder of Farmland Partners alongside former CEO Paul Pittman, Fabbri was named president in October 2021 after serving as the company’s CFO since its inception. He became CEO in February.Speaking with the Nareit REIT Report, Fabbri said the value of U.S. farmland assets is about $2.7 trillion, with institutional investors accounting for probably 5% or less of that amount. That means that there is still a lot of education to be done to show investors that the asset class offers many potential benefits. Among those are the scarcity of the underlying asset, an attractive risk return profile, asset appreciation, inflation protection, and the absence of correlation with other asset classes.

Essex Property Trust, Inc . (NYSE:ESS) President and CEO Mike Schall says the multifamily REIT is facing favorable tailwinds—including continued tech investment in its core markets, muted supply, and strong balance sheet fundamentals—as he prepares to step down from his current role at the end of the month.Schall has served as president and CEO since 2011. His successor is Angela Kleiman, Essex’s current SVP and COO.Speaking with the REIT Report, Schall said, “Coming out of periods of disruption, we've always been an opportunistic company. We've always found the right investments in the right place. And I think this is the case today.”Schall highlighted the rapid pace of investments underway today by tech companies in artificial intelligence, which is likely to drive the economies of northern California and Seattle. “That will help Essex continue to grow as it has over much of the last 30 years or so.”

The supply of housing in the United States has “never been more out of balance”—with the lack of affordable housing particularly acute—making long-term policy initiatives on the federal, state, and local level more important than ever, says Sharon Wilson Géno, president of the National Multifamily Housing Council (NMHC).Wilson Géno assumed the role of president from Doug Bibby in January, when he officially stepped down after more than 20 years of leading the organization.Speaking on the REIT Report, Wilson Géno said, “The bottom line is, the demand for more housing in this country is as far as the eye can see.”Research by NMHC and other organizations indicates that the U.S. housing stock is in a deficit of about 4 million units.Wilson Géno said new households have formed in the wake of the pandemic, “and that really put a significant strain on the housing supply that was available.” Sizeable rent increases also occurred into the first half of 2022, she noted.

Dynex Capital, Inc . (NYSE: DX) CEO Byron Boston describes the current geopolitical and macroeconomic conditions as an “evolving period” in which the mREIT is maintaining a flexible mindset and evaluating multiple scenarios for the future.Boston, who is also the mREIT’s co-chief investment officer, told the REIT Report that “we're respectful of this evolving period. We're respectful that we may continue to be surprised.” In response, Dynex Capital is carrying more cash and liquidity on its balance sheet, he noted. “Liquidity is absolutely key.”This year, Dynex Capital will not be trying to predict exactly how far or how fast inflation will go, Boston said. “We are evaluating from a month-to-month basis. We're carrying more cash and liquidity because we feel it is dangerous to try to pick one scenario and structure your portfolio around that one scenario with economic variables being this uncertain, and the potential for exogenous shocks to the economy so high.”Dynex Capital’s number one strategy, according to Boston, is “how much risk should we take in this environment? We have a flexible enough mindset not to reject the data as it's coming out.”

Investors looking to allocate to real estate today should consider the listed market first, with REITs in particular priced to deliver annual returns in the high single digit range for the next several years, says Lisa Kaufman, head of global securities at LaSalle.“We see public real estate as unequivocally more attractive than private real estate today,” Kaufman told Nareit’s REIT Report podcast.Kaufman said the REIT market has been “really very rational” through the recent period of tightening financial conditions, “and financial conditions do remain in the driver's seat.” She noted that REIT returns “are attractive and we have a higher level of conviction in our outlook today just given the material tightening of financial conditions and the repricing that's already occurred in the REIT sector.”REITs are underrepresented today in institutional real estate portfolios, Kaufman said. Listed real estate represents around 45% of institutional quality real estate worldwide, but only about 20% of investors’ real estate allocation. REITs have the additional benefit of being disproportionately weighted toward non-traditional property types like self-storage, health care, and data centers, she said.

REITs provide protection against high and moderate inflation across a range of property types, says Nareit Vice President of Research Nicole Funari.Speaking on Nareit’s REIT Report podcast, Funari noted that, in terms of how REITs respond to inflation pressures, “people are inclined to believe that there might be differences among the property sectors, but the data doesn't bear that out.”