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Effect of Rate Shifts on REITs Should be Muted, J.P. Morgan Strategist Says

06/04/2014 | By Allen Kenney

Michael Hudgins, real estate strategist with J.P. Morgan Asset Management, joined REIT.com for a video interview during REITWeek 2014: NAREIT’s Investor Forum, held in New York.

Hudgins discussed the growth of the single-family REIT sector.

“Several of these companies have done really well,” he said. “It’s fair to say they’ve surprised to the upside.”

Hudgins pointed out that the larger companies in the sector have achieved “significant scale.” However, he also noted that it is unclear at this point how much recurring investment will be required to keep their properties in rentable condition, which could impact their dividend payouts in the long term. Additionally, the “easy gains” available to single-family REITs through buying assets in “fire sales” have disappeared, according to Hudgins.

Hudgins was also asked about how Federal Reserve monetary policy could affect the performance of the REIT market.

“Last year, when we had the ‘taper tantrum’ and rates spiked, that was a surprise,” he said. “I think a lot of what is coming our way is now well telegraphed.”

Hudgins did acknowledge that he is anticipating more volatility in reaction to monetary policy shifts. On the other hand, the signals being sent to the market mean that the “knee-jerk reaction” that came from last year’s rate adjustments will be muted, according to Hudgins.