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.
In the latest edition of the Nareit REIT Report, Darin Buelow, global location strategy leader at Deloitte, looked at the specific challenges that financial institutions face in returning to the workplace after an extended absence resulting from COVID-19.
According to Deloitte, financial institutions account for more than 15% of total office leasing activity.
Buelow noted that many financial service firms are located in downtown high-rise environments where employees have to use public transportation and deal with elevator access. COVID-19 is hitting these companies “very profoundly,” he noted.
Nareit Senior Economist Calvin Schnure discussed some of the main themes from Nareit’s REITweek: Virtual Investor Conference and the May jobs report in the June 8 edition of the Nareit REIT Report podcast.
Schnure characterized the overall mood at REITweek as “cautiously optimistic.”
“Obviously we’re still in unchartered waters and there’s a lot of concern about unforeseen risks in the period ahead,” Schnure noted. While economic activity is beginning to resume, few expect it to be without glitches, he added.
At the same time, property sectors are seeing a wide range of impacts from the crisis. In the retail sector, for example, the reopening of the economy is expected to help rent collection but going forward many tenants are still going to have a low level of revenue, “so we’re not out of the woods yet on that front,” Schnure said.
The latest edition of the Nareit REIT Report podcast looked at employment trends in the commercial real estate industry with Marc Torrey, vice president and global sales director at SelectLeaders, a career resources platform for real estate professionals.
Torrey explained that the landscape for commercial real estate hiring heading into the coronavirus crisis reflected a typical trend seen in an election year: a slow down on the transaction hiring side and a pick-up on the operations and asset management side. “We were already seeing that, and it went into overdrive with the start of the coronavirus,” he said.
While commercial real estate hiring slowed down considerably in April, it picked back up in May, according to Torrey, especially for full-service real estate firms. “We have seen it coming back in May and I think we’re going to see a lot of hiring happening over the course of the next few months and even (for) years to come as a result of everything that’s transpired,” he said.
Nareit’s T-Tracker, a comprehensive summary of REIT earnings and operating performance, showed an overall picture of weak earnings in the first quarter, with about half of the 9% decline in funds from operations (FFO) reflecting the lodging and hotels sector.
Speaking May 26 on the Nareit REIT Report podcast, Nareit Senior Economist Calvin Schnure noted that regional malls also had a decline in earnings and most other property sectors had modest declines. Industrial REITs, meanwhile, had a 21.7% increase in FFO, and single family home REITs saw a 7% FFO increase.
Most of the first quarter predated the COVID-19 crisis. As a result, second quarter T-Tracker results are likely to be “quite a bit weaker,” Schnure said.