Marty Cicco, senior managing director at Evercore Partners, spoke with Nareit’s REIT Report podcast in New York at REITweek: 2019 Investor Conference.
Cicco assessed the state of the commercial real estate market at mid-year. “It ranges from healthy, to beyond healthy, to unbelievable in some cases, but there are still a few sectors that have some challenges,” he said.
At the same time, the business cycle—while clearly in the later stages—is breaking all records, according to Cicco.
“You’re in an extraordinary time with low interest rates, the economy in the U.S. appears healthy, but we’re obviously in the midst of a growing trade war with China…[and] you’ve got issue like North Korea and Iran out there that could jolt the markets,” Cicco said.
Joel Beam, senior portfolio manager of real estate strategies at Salient, spoke with Nareit’s REIT Report podcast in New York at REITweek: 2019 Investor Conference.
Trade tensions are reinforcing the value of property investment in general, according to Beam. REITs have outperformed this year and have outperformed “meaningfully” versus the broader market since April 30, he said. “I think that’s a testament that real estate represents a flight-to-safety approach for a lot of folks.”
While certain subsectors may have more exposure to trade policy changes, “we’re really waiting for clarity on these matters before making portfolio changes. To some extent it’s too soon to tell,” Beam said.
Beam also commented on the ongoing impact of e-commerce. “To me, the drama in this space is all about what happens to retail…we’re in a situation where tenants have more leverage and more choices, and landlords on the margin are having to rethink how they tenant their properties,” he said.
REITs and listed real estate are likely to see minimal impact from ongoing trade tensions, while the sector offers the potential for “outsized returns” due to solid fundamentals, according to Laurel Durkay, senior vice president and portfolio manager of global and U.S. real estate at Cohen & Steers.
Durkay was a guest on the latest edition of the Nareit REIT Report podcast.
The domestically-focused nature of real estate securities provides “relative insulation” from trade tensions versus the broader equity market, Durkay said.
“We do believe that real estate and REITs do offer a lot of very positive attributes in a time of heightened economic insecurity,” she noted.
The latest edition of the Nareit REIT Report podcast looked at the impact of New York’s recently-passed Climate Mobilization Act with Cliff Majersik, executive director of the Institute for Market Transformation.
Majersik described the bill, which calls for buildings larger than 25,000 square feet to institute a 40% reduction in carbon emissions by 2030 and 80% by 2050, as “very ambitious.” He noted that New York and Washington, D.C. are the only two cities in the nation to target existing buildings.
While many building owners probably won’t have to make any adjustments during the first compliance period, they would be “well advised to look at the whole scope of the law, all the way out to 2050, and to try to make sure they are taking action now that will position themselves to meet the requirements going forward,” Majersik said.
The latest edition of the Nareit REIT Report podcast explores the topic of real estate-targeted technology, commonly known as PropTech, with Blake Liggio, a partner in the law firm Goodwin’s Real Estate Industry Group.
PropTech has seen significant acceleration in recent years due to the growth of technologies targeting real estate and the increase in capital supporting those platforms, according to Liggio.
Liggio said the benefits of PropTech within the real estate industry, namely the ability to increase operational efficiencies and impact overall returns, have become clearer. “This is a relatively new development…real estate was generally resistant to the idea that advancing technology was necessarily a worthwhile effort to explore,” he said.
The latest edition of Nareit’s REIT Report podcast took an inside look at retail real estate with Joe Coradino, CEO of Philadelphia-based PREIT since 2012.
Coradino described 2019 as an “exciting year” for PREIT. “We have so many milestones that we will execute on this year, projects that are coming to fruition that in some cases go back nearly 15 years.”
One noteworthy project is Fashion District Philadelphia, which opens in September. It sits atop the main transportation station in downtown Philadelphia, with about 22 million commuters a year accessing public transportation via the mall’s concourse level.
The latest edition of the Nareit REIT Report podcast featured Gunnar Branson, the CEO of AFIRE, an association for global investors focused on institutional real estate in the United States.
Branson highlighted some of the key findings from AFIRE’s recently-released annual International Investor Survey.
Despite the current length of the real estate cycle and geopolitical and economic concerns, Branson said there’s “a strong sense of confidence in how things look this year. There continues to be a lot of interest from non-U.S. investors in U.S. property markets.”
Richard Stockton, president and CEO of Braemar Hotels & Resorts discussed developments in the luxury hotel segment during the latest edition of the Nareit REIT Report podcast.
Braemar invests primarily in full-service luxury hotels and resorts. Stockton discussed steps Braemar has taken to realign its portfolio, while also commenting on some of the significant weather-related challenges the REIT has faced.
Stockton, meanwhile, touched on the benefits Braemar is accruing through its Enhanced Return Funding Program with external advisor Ashford Inc.
Turning to investment transaction and liquidity in the luxury resort sector, Stockton said major buyers, including other REITs, have moved into the space. “That has put some pressure on pricing…pricing has gotten richer. It’s been a little bit more difficult for us to find deals that make sense financially, so we’re finding ourselves sifting through more deals than we’ve had to do in the past to meet our return criteria.”
Michael Kessler, a partner in the New York REIT practice of Alston & Bird LLP, was a guest on the latest episode of Nareit’s REIT Report podcast.
Kessler discussed the next wave of innovative ideas and concepts that are emerging in the REIT sector.
One area that is generating attention is clean energy and Property Assessed Clean Energy (PACE) loans, Kessler said. These provide incentives and regulatory frameworks to enable private capital, including mREITs, to fund energy efficiency improvements in residential and commercial properties.
Many states have adopted PACE programs or are actively considering them, according to Kessler, adding that estimates point to hundreds of billions of dollars of improvements needing funding over time.
Kessler sees opportunity zones as another area of interest. While not every opportunity zone strategy is right for a REIT, such as a fix-and-flip strategy, “many other strategies could work nicely using a REIT platform and potentially see better valuations.”
In the latest edition of the Nareit REIT Report podcast, Ian Anderson, director of research and analysis at CBRE, spoke about the momentum driving the life science industry and the real estate that it occupies.
A new report from CBRE shows that the industry is growing at its fastest pace in 18 years, with construction of lab space in the top five markets monitored by CBRE doubling over the past year. “The industry is certainly on a tear,” Anderson said. The long-term trajectory doesn’t show anything to derail growth, which continues to attract more investors to the industry.
REITs, meanwhile, play a leading role in that growth. “There’s a lot of capital needed upfront, which scares off some of the smaller investors. That gives REITs an advantage right there,” Anderson said.