Nareit's REIT Report Podcast

Economic data released last week show a lot of potential for rebound—as long as the reopening can continue to proceed, according to Nareit Senior Economist Calvin Schnure.Speaking July 20 on the Nareit REIT Report podcast, Schnure highlighted the range of economic indicators for June that were reported, including industrial production, retail sales, and housing starts. Those numbers underscore the possibility of getting the economy back to where it was before the pandemic, but “only as long as the virus is under control,” he said. News that the virus is surging in parts of the United States is creating tension in the market and threatens a pause or partial reversal of economic gains.Schnure also discussed the potential for another round of stimulus. While details remain unclear at this point, the expiration of extended unemployment benefits at the end of this month gives some pressure to meet that deadline, he noted.

Family renter households are likely to account for a growing share of the overall renter pool as the millennial generation begins to raise families and create homes of their own, says Christopher Ptomey, executive director of the Urban Land institute’s Terwilliger Center for Housing.Families currently account for about a third of the overall renter pool, Ptomey told Nareit’s REIT Report, but that is likely to change. “The millennial generation is reaching a tipping point demographically,” he said. “With the size of the millennial generation, we really expect that family renter cohort being a larger and larger portion of the overall number.”

A rollback of state reopening plans across the United States is placing additional strain on REIT tenants, especially those in the retail real estate segment, according to Jim Sullivan, managing director and REIT analyst at BTIG.On July 13, California announced a statewide closure of all indoor operations of dine-in restaurants, movie theaters, and family entertainment centers, among others. County indoor closures include fitness centers, hair salons and barbershops, and malls, if those counties have been on a county monitoring list for three consecutive days.Speaking July 14 on the Nareit REIT Report, Sullivan said certain types of retail will be particularly hard hit by the reclosure orders.“For retailers of apparel, footwear, and accessories, particularly if there’s a seasonal element, it’s going to be very, very difficult for the retailers in the malls to be open on an effective, efficient basis to generate levels of revenue comparable to pre-COVID levels,” Sullivan said.

REIT share prices edged lower last week, as both the broader economy and also the real estate sector continue to be buffeted by the opposing forces of economic reopening and the spread of the virus, according to Nareit Senior Economist Calvin Schnure.Speaking July 13 on the Nareit REIT Report, Schnure said news of more rapid growth of new cases, especially across the Sunbelt, is leading to a reconsideration of the prospects of reopening right away or being able to do so fully, rather than in slow stages.Those concerns were reflected in REIT performance last week, with the sector down on balance, with the exception of timber, infrastructure, and home financing mREITs.

LaSalle Investment Management Securities Global CEO Lisa Kaufman said REITs are attracting investor attention on the basis that they currently offer “very good value” relative to the private market, as well as on a historic basis relative to equities and bonds.Speaking July 6 on the Nareit REIT Report podcast, Kaufman said REITs in the United States and globally have “dramatically repriced,” and are materially underperforming broader equities and private real estate, “so we do see very good value today.”LaSalle has lowered its REIT net asset value (NAV) estimates about 15%, and even with that reduction “we see some big discounts on offer,” Kaufman said. This is not lost on investors, she said, particularly the more opportunistic ones who are “adding money to the sector or even launching new programs to take advantage of what they see, and what we would agree, is a really good entry point.”

Nareit Senior Economist Calvin Schnure said the June employment numbers released last week were a “welcome positive surprise” that shows commercial real estate is heading in the right direction.Speaking July 6 on the REIT Report podcast, Schnure said the 4.8 million jobs reported for June exceeded expectations by a wide margin. The unemployment rate, meanwhile, fell more than anticipated, to 11.1%. While that is still a very high number, Schnure said, “this is a good down payment on the recovery that we’re going to need.”Hiring last month was concentrated in the sectors that had the biggest job losses when the economy shut down, such as retail and hospitality, Schnure pointed out. Despite the jump in employment, many of these establishments will not be doing their pre-crisis level of business right away, he noted.

Nareit Senior Economist Calvin Schnure said the Federal Reserve’s latest bank stress test results point to a banking system that is well positioned to support the real estate economy under various recovery scenarios.Speaking June 29 on the REIT Report podcast, Schnure said the stress tests showed that most banks remain well capitalized under either a V, U, or W-shaped recovery. A V-shape sees the economy recovering later this year or early 2021, a U-shape points to a more sluggish recovery, and a W-shape indicates a double-dip recession.The Fed also suspended share buybacks and limited dividend payments, Schnure said, noting that share buybacks have accounted for about 70% of payments made to shareholders by large banks.

Nareit Senior Economist Calvin Schnure said REITs are facing a “mixed picture” as the forces of economic recovery are being tempered by uncertainty regarding the ongoing risks from COVID-19.In the June 22 edition of the REIT Report, Schnure noted that the recent divergence between the course of the pandemic and the pace of economic activity strengthened over the past week. While REITs and the broader equity markets reacted positively to surprisingly strong May retail sales numbers, that optimism subsided later in the week on news of a surge in new COVID-19 cases and what that means for the prospects of economic reopening.

Gina Szymanski, portfolio manager and director at AEW Capital Management, an affiliate of Natixis Investment Managers, joined the latest edition of the Nareit REIT Report podcast.Szymanski discussed some of the differences between the current COVID-19 crisis and the global financial crisis. She pointed to the size and pace of fiscal and monetary stimulus as “the biggest difference by far.”“During the last crisis the Fed was still learning how to be creative. This time around they are very aware of the playbook," Szymanski said.

In the latest edition of the REIT Report, Nareit Senior Economist Calvin Schnure said investors will be watching this week to see if economic indicators point to an uptrend similar to what was seen in the recently-released May unemployment report.May retail sales numbers released this week will show whether or not spending has bottomed, Schnure said. The Federal Reserve, meanwhile, will report industrial production this week, while housing starts will also be released.“Over the next several days, we’ll get a lot better idea of whether the whole economy is starting to turn towards recovery the way we saw in the job market,” Schnure said.