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Office, Apartment Sectors Expected to Outperform

12/03/2012 | By Allen Kenney

David Toti, senior managing director with Cantor Fitzgerald, joined REIT.com for a video interview at REITWorld 2012: NAREIT's Annual Convention for All Things REIT at the Manchester Grand Hyatt in San Diego.

Toti heads Cantor Fitzgerald's division for U.S. equity research. Cantor Fitzgerald is a global financial services firm with a capital markets investment bank serving more than 5,000 institutional clients around the world.

Toti offered his outlook for the big stories in the REIT market in 2013.

"Going forward, the big story is not going to be what you expect in terms of fundamental issues or balance sheet issues. I think, honestly, the issue is going to be REITs maintaining investor interest after many years of outperformance," Toti remarked. "Balance sheets are stronger than they've been in a long time. There's earnings growth. There's core fundamental growth. The question is that with pricing elevated somewhat and dividends a little less attractive in terms of yield, the broader investor base is saying, 'I can find value somewhere elsewhere.'"

Toti singled out the office sector as one that is likely to surprise investors.

"We're seeing the start of tenant demand that has been on hold through the election. It is probably going to stay relatively muted through the fiscal cliff resolution, but I think that next year business are going to be able to underwrite expansion of the economy. That will be a big driver of fundamental demand for the office space," he said.

Toti also said he expects the apartment sector to perform "quite well" in 2013.

"Fundamentals remain very strong," he noted.

Toti said his firm is projecting REIT returns of approximately 10 percent in the coming year, which he said would be strong relative to the S&P 500.

"It's still a pretty attractive case relative to broader security returns, and then you have the 3.5 percent dividend yield on top of that as well.