Nareit's REIT Report Podcast

Farmland real estate is one of the nation’s largest commercial real estate sectors and its low risk and volatility profile makes it a “great hedge” within a balanced portfolio, says Pierre Rigaud, vice president, advisory and consulting, at Green Street.Speaking on the REIT Report, Rigaud noted that the farmland real estate sector is valued at $2-3 trillion. Institutional ownership in the sector is only about 1%, compared with 5-15% in most other real estate sectors. The two key crops in the sector are row crops and permanent crops, with row crops having a lower risk profile than permanent crops.Rigaud said farmland real estate and how it compares to other asset classes is not well understood by investors at this time. Some of the key attributes of farmland real estate include its lower obsolescence risk, lower fungibility risk, and lower capex burden.Population growth has outpaced the supply of arable land, Rigaud noted, resulting in land appreciation. As a result, “U.S. farmland has had a very strong track record of delivering relatively attractive returns over long holding periods.”

The landscape for real estate fundamentals looks “very favorable” going forward, supported by GDP and employment growth, according to Lowell Bolken, portfolio manager of the Securian AM Real Asset Income Fund and Real Estate Securities Fund.“We think employment will be strong as job openings are still above the actual unemployed population right now,” Bolken told Nareit’s REIT Report.He noted that in terms of REIT valuations, it’s a mixed picture. However, “we're very confident where the economy is going in terms of real estate and other sectors…growth is still in the offing.”Bolken, meanwhile, noted that while inflation might not last longer term, “it's less than transitory.” As a result, Securian is positioning itself for short term inflation by focusing on assets with shorter term leases such as apartments, self-storage, and hotels, while de-emphasizing the net lease sector.

Jonathan Morris, adjunct professor in Georgetown University’s Master’s of Real Estate program and a former REIT executive, believes the continued success and evolution of the REIT industry highlights the need to enhance the level of understanding of the REIT structure and what makes it work so well.Speaking on the REIT Report, Morris said he has launched a new education platform, REIT Academy, to fill the void in executive and professional development education in the REIT industry. The inaugural program spans eight weeks, comprised of one evening per week for three hours of live instruction, as well as guest speakers from the industry.Morris said the program will give a student “pretty much everything you need to know to be able to understand any given REIT and come to your own conclusions, using the tools that you'll learn here to assess how to value the company.”

Investors who own their own homes may be taking a limited view of real estate investment, and in turn are missing out on the benefits of owning commercial real estate through REITs, according to Nicole Funari, Nareit vice president of research.Speaking on the REIT Report, Funari noted that oftentimes homeowners think they are already invested in real estate simply by owning their own home. While that is true, they also need to examine the differences between homeownership and owning commercial real estate, she said.“They think they are covered in their investment portfolio when we feel that, no, you really are missing out on the benefits of commercial real estate,” especially because a lot of homeowners don’t consider the breadth of commercial real estate asset classes, Funari said.

REITs have convincingly outperformed private equity real estate funds in head-to-head matchups over a 20-year sample period from the first quarter of 2000 to the fourth quarter of 2019,  according to Tom Arnold, a visiting scholar at the University of Florida’s Warrington College of Business.Speaking with the REIT Report, Arnold highlighted the results of new research, sponsored by Nareit, that he carried out with fellow academics David Ling and Andy Naranjo at the University of Florida.Arnold explained that one of the main takeaways from the research is that even with no risk adjustments, 53% of the time investors would have been better off in the REIT index during the period that the private equity real estate fund was investing. The mean out-performance was 165 basis points, or 1.65 percentage points, per year. With a conservative investment for relative risk, REITs outperformed nearly 70% of the time, and their outperformance grew from 165 basis points per year to almost 600 basis points per year.

REITs can help provide access to the new economy sectors—such as cell towers, data centers, and networked logistics properties—that complement the traditional real estate property types, according to Todd Kellenberger, client portfolio manager, real estate securities at Principal Real Estate Investors. Kellenberger noted that the idea of using REITs to gain access to these new economy sectors as part of a portfolio completion strategy has garnered increased attention from institutional investor clients recently. Kellenberger joined guest host Meredith Despins, Nareit’s senior vice president, investment affairs, for a special edition of The REIT Report podcast to discuss the role REITs can play in building a successful 21st century real estate investment portfolio.

As technological innovation results in more efficient supply chain distribution, changes are also occurring in traditional concepts of industrial real estate and where it should be located, says Steve Weikal, lecturer, researcher, and the CRE Tech lead in the MIT Real Estate Innovation Lab.“Certainly what the industry thinks of as industrial real estate, or warehouse distribution real estate, has changed and will continue to change,” Weikal said on the REIT Report podcast.“If we are able to use technology to provide distribution more efficiently, more effectively, and in smaller spaces, which is very often the case, can we now do that in structures and in buildings that we hadn't considered before?” Weikal said.The proliferation of specialized data has enabled the industry to determine “the kinds of buildings that we need, the shapes, the sizes, and especially where they need to be located in order to make the global distribution system more efficient,” Weikal noted.

A global pandemic, major climate events, and a focus on social change have combined to create “unprecedented” demand for talent to fill sustainability and ESG positions, says Shelly Fust, co-leader for Korn Ferry’s global Sustainability and ESG Solutions Center of Expertise.Speaking on the REIT Report, Fust described sustainability and ESG as “a very big tent,” requiring talent from all sectors and all levels to fill the demand being created by this accelerating market. “There's so much momentum underway in this space. I believe truly that anyone who has the passion and interest in this sector can find a very rewarding career,” she added.Fust noted that corporate sustainability roles were really just being created about 15 years ago and were relatively thinly staffed at the top corporate level.“Many of those first chief sustainability executives are now preparing to retire. And as we're having to then magnify these roles across just about every organization, we’re finding that there's significantly more demand than there is talent,” Fust said.

The recovery in the leisure travel sector continues, despite concerns over new COVID-19 variants, while a similar trend in the business travel segment is yet to emerge, according to Jim Sullivan, managing director and REIT analyst at BTIG.Speaking on the REIT Report, Sullivan said that as of mid-August, “we have not seen any material decline. Traffic volume is holding up pretty well in the face of the Delta variant concerns.”Sullivan said Transportation Security Administration (TSA) data point to a “pretty consistently high” level of comfort in traveling, particularly for the leisure traveler. Recovery in the business sector is going to occur later, however.One reason the leisure market is seeing strong demand is the new flexibility provided to travelers who are able to work remotely, Sullivan noted.

Conditions remain healthy for real estate investment, with inflation expected to be transitory and any increase in long-term interest rates likely to be modest, according to Carly Tripp, global chief investment officer and head of Nuveen Real Estate Investments.Speaking on the REIT Report, Tripp said that although inflation had been felt in terms of cost fluctuations for building materials, Nuveen’s view is that inflation is transitory. “Overall, we’re not concerned at this point and continue to see a recovery across the board with some of these supply/demand imbalances expected to rectify over the next two or three quarters.”Tripp noted that interest rates remain “extremely attractive,” despite expectations of rate rises for the past decade. While the Federal Reserve has indicated it has no plans to increase short term rates anytime soon, long term rates, which are dependent on the market, are not posing a problem either, she added.