Although REITs have abundant access to capital, finding appropriate places to invest it has presented more of a challenge, according to Brian Gill, partner with Artis Advisors and adjunct professor of finance and real estate at Georgetown University.
In a video interview with REIT.com at a Real Estate Luminaries Series event on April 19 at Georgetown sponsored by NAREIT in conjunction with the McDonough School of Business, Gill gave an overview of the state of the capital markets, property pricing and new investors in commercial real estate.
Gill noted that investors continue to hold coastal gateway cities and their high-quality assets in high regard. However, he said yields begin to move up “significantly” in outlying, suburban areas. The same can be said of secondary and tertiary markets, as well as “out-of-favor” classes of assets, according to Gill.
“I think those types of assets are still experiencing a very wide risk-spread premium that may or may not be in line with the actual risk spread associated with those investments,” Gill said.
Gill said a “disproportionate amount” of capital currently in the commercial real estate market belongs to buyers with objectives that are different from dedicated REIT and real estate investors.
“Different investors have different reasons for wanting to be in real estate, whether it’s a yield reason, whether it’s a safety reason or a defensive position in their portfolio,” Gill said. “I think the buyers who are coming into those core types of assets and the perceived safer markets are really looking for a place to park their money and are looking at spread versus treasuries, as opposed to a total return.”
Gill speculated that non-U.S. investment in the domestic commercial real estate market has had a clear impact. Given international investors’ historical preferences, they’re providing competition in major markets for core assets, he said.
“In particular, I think the European pension funds and insurance companies, who tend to have a more conservative outlook on the market and a more conservative investing style, have traditionally been attracted to core assets, and I think in this market, it has been just the same,” he said. Asian investors have been active in the market, too, Gill said.