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REITs Appealing in Times of Uncertainty

08/23/2011 | By Allen Kenney

With general economic uncertainty ratcheting up, REITs should appeal to investors, according to Keven Lindemann, managing director with SNL Financial.

In his monthly market update video interview with REIT.com, Lindemann noted that the volatility in the broader economy this month has crept over into the REIT market. The result has been some dramatic gains and losses and a day-to-basis.

"I think that just reflects the general sense of uncertainty around the stock market and the broader economy right now," Lindemann said.

However, the instability in the broader market should make REITs all the more attractive to investors, Lindemann said, especially given their relatively low levels of leverage when compared to historical norms. He also said REITs' dividend policies could sway investors.

"I think there is an appeal to the investment community in hard assets in these uncertain times," Lindemann said. "I think the current income component of REITs certainly plays in its favor."

Looking at the specific sectors of the REIT market, Lindemann singled out multifamily REITs as being particularly well positioned to weather the economic storm. Trends in the residential housing market are playing in favor of apartment REITs, according to Lindemann.

"The dysfunction in the single-family housing market is certainly helping the market along," he noted. "The fact that there is relatively little new supply of multifamily product out there is certainly helping multifamily REITs be the top performing sector right now. I think that probably continues out through the balance of this year and into 2012."

Lindemann did say that he's expecting a "correction" in the multifamily market in the longer term. At the moment, however, the sector still looks strong, he said.

"The conditions that are allowing it to outperform today are going to be addressed," Lindemann said. "Eventually the single-family housing market will fix itself. There is a lot of multifamily construction right now that will come back online."

Looking ahead, Lindemann said activity in the non-traded REIT sector is a trend to watch. He noted that he'll be looking to see if non-traded REITs become "more mainstream" and opt to hold listed REIT initial public offerings.