In the latest edition of the Nareit REIT Report podcast, Beth Burnham Mace, chief economist and director of outreach at the National Investment Center for Seniors Housing & Care (NIC), looked at the latest trends and developments in the senior housing sector.
Mace described today’s typical senior housing resident as 83 years old with higher acuity needs than in the past. “Because of the great recession, people delayed the timing of when they moved into senior housing, and that has held to be true even today.”
Occupancy trends have been “relatively weak,” Mace said. In the third quarter, the senior housing occupancy rate was 88%, up from 87.7% in the second quarter—which was the lowest level in eight years. Net absorption of senior housing units in the third quarter was the highest number in a single quarter since NIC began recording data in 2006.
Assisted living occupancy in the third quarter moved off its record low level seen over the prior three quarters to hit 85.4%. Independent living occupancy, meanwhile, was 90.2% in the third quarter.
In the latest edition of the Nareit REIT Report podcast, Jim Berry, U.S. Real Estate leader at Deloitte & Touche LLP, highlighted some of the trends that emerged in Deloitte’s recently released 2020 commercial real estate outlook.
Deloitte based its findings on a survey of 750 real estate owners and operators in 10 major global markets. One of the key trends in the outlook was the importance of tenant experience, with 64% of respondents saying they would continue to increase their investment in tenant experience technology.
“We noted that the clear movement on the expectations of the tenants, as well as the overall end-user, was really impacting the way real estate companies are…continuing to make decisions,” Berry said.
In the latest edition of Nareit’s REIT Report podcast, Gil Menna, co-chair of the REITs and real estate M&A practice at law firm Goodwin, discussed the climate surrounding mergers and acquisitions (M&A) and initial public offering (IPO) activity.
M&A activity has been light in 2019 compared to previous years, in large part due to an “anemic” REIT market performance last year, Menna said.
“Certain sectors in the REIT market have been off. Normally that would result in privatization transactions of public companies that are trading at discounts to net asset value (NAV), but we haven’t seen a significant amount of activity there as well because there has been an abundance of private opportunities available for capital that’s attracted to the real estate asset class,” Menna explained.
The latest edition of the Nareit REIT Report podcast looked at the increasingly important role that chief human resource officers (CHROs) are playing on executive boards. Bill Ferguson, CEO of Ferguson Partners Ltd., and Elizabeth Gaffney, global CHRO practice leader at Ferguson, discussed their new research on the topic.
“Human capital issues are increasingly dominating boardroom discussions,” according to Ferguson. He noted that Ferguson research has identified 56 either active or retired CHROs on Fortune 500 boards. “We were surprised the number was as big as it was—75% of these had been appointed since 2015 and 30% since 2017,” he said.
According to Gaffney, the human resources role has become much more important throughout all industries: “The role of HR has moved from one that has been viewed as tactical in nature to one that is strategic. CHROs are now reporting to the CEO in most companies and are certainly part of the C-suite.”
The latest edition of the Nareit REIT Report podcast featured an interview with Ed Fritsch, who stepped down as CEO of Highwoods Properties on Sept. 1 following a career of more than 30 years at the Raleigh, North Carolina-based office REIT.
Fritsch joined Highwoods in 1982 at the age of 23 and was a partner in the predecessor firm before its IPO in June 1994. He served as COO from January 1998 to July 2004 and was vice president of operations and secretary from June 1994 to January 1998. He became the company’s president in December 2003 and CEO in July 2004. Fritsch also served as Nareit chair in 2016.
Fritsch said that holding a variety of positions throughout his career at Highwoods enabled him to “leverage that information to the good of the company.”
A year after Fritsch became CEO, Highwoods implemented a strategic plan that remains in place today.
“I knew Highwoods was a good company, but I was keenly interested in how we could make it better. The team made a pledge that no person, no process, and no property was sacred—we popped the hood and questioned every part of the engine,” Fritsch said.
The latest edition of the Nareit REIT Report podcast looked at industrial real estate trends with George Cutro and Chad Buch from JLL’s Chicago industrial research team. Cutro and Buch also co-host JLL’s Chicago Industrial-Real Time Podcast.
Buch said JLL is “cautiously optimistic” for industrial real estate in 2019. Despite global uncertainty, “the fundamentals are really healthy,” driven by consumer consumption, e-commerce, and supply chain innovations.
Cutro noted that e-commerce has changed the supply chain cycle, with the advent of smaller sized distribution centers replacing a traditional hub-and-spoke system. “We’re seeing a lot more demand in that smaller size, call it under 500,000 square feet, that’s really driving today’s numbers,” Cutro said.
“The big deals all happened a couple of years ago in the coastal and core markets…now this is the second round of smaller and mid-sized deals happening in some of the secondary markets,” Buch said.
The latest edition of the Nareit REIT report podcast featured Melinda McLaughlin, vice president of research at Prologis, Inc. (NYSE: PLD), who discussed some of the highlights of Prologis’ latest Industrial Business Indicator (IBI) index report, a quarterly survey of customer sentiment.
McLaughlin described industrial demand at mid-2019 as “healthy,” with the IBI index currently at a level of around 60. Customers are continuing to grow at a “sustainable pace” following 2018, which was the second highest level for net absorption of industrial space seen in this cycle.
“The tailwinds to demand, which we've seen throughout this cycle, continue to play a large part in what we're seeing in terms of customer leasing activity,” McLaughlin said.
The latest edition of the Nareit REIT Report podcast looked at the advent of 5G—and what it means for infrastructure REITs—with Ji Zhang, senior research analyst at Cohen & Steers.
Zhang discussed the evolution of infrastructure REITs as a component of the broader REIT industry.
In 2000, traditional REIT sectors accounted for about three quarters of REIT market capitalization, she observed. Today, they count for just under half. The first data center REIT was listed in 2004 at just under $300 million in market cap. In 2012, the first tower company converted to a REIT at about a $30 billion market cap. Today, tower and data center REITs comprise just under 25% of the REIT investment universe.
“We believe these technology-oriented sectors will continue to gain in importance given their secular demand drivers and important roles in the digital economy,” Zhang noted.
In the latest edition of the Nareit REIT Report podcast, Kimco Realty Corp. CEO Conor Flynn discussed the shopping center REIT’s unique approach to ESG matters.
Flynn reflected on the evolution of Kimco’s ESG program since its inauguration 8 years ago. “Today we’re in a very different place,” he said. As the program has matured, Kimco has found ways to embed various ESG activities and responsibilities into existing teams across the entire organization. Now, instead of having one individual directing all its ESG efforts, Kimco has shifted to managing through a cross-functional steering committee comprised of various department leaders.
From an environmental perspective, moving the needle requires a sustained multiyear commitment, Flynn observed. He noted that the scale with which Kimco has adopted energy efficiency measures has been “transformative.” For example, the REIT recently concluded a first-of-its-kind installation of over 4,500 submeters across every tenant space in its portfolio. Because tenants are now billed on their actual consumption, they have a direct financial incentive to conserve, he said.
Steven Brown, global head and senior portfolio manager, real estate, at American Century Investment Management, discussed broad trends impacting the REIT market during a podcast interview at REITweek: 2019 Investor Conference.
REITs have had a “nice bounce” in 2019, partly because of how inexpensive they were at the end of 2018 but also because of the change in Federal Reserve language toward interest rates, according to Brown. “We think that real estate fundamentals are sound, but if we do get a period of easing, that will support real estate even more," he said.