Market Commentary

One of the enduring mysteries of reporting on investments is how many people seem to focus on price appreciation OR income, and how few people focus instead on total return

REITs have steadily fortified their balance sheets, leaving the industry in as solid a financial position it has ever seen, based on more than two decades of data available.

The fundamentals for the REIT industry remain firm, which gives us some confidence that the recent decline in FFO is a short-term dip amidst a longer-term trend of mostly solid growth.

The apartment market led the way among commercial property markets in the third quarter, as robust demand pushed down the national vacancy rate and supported rent growth.

Pricing in the private real estate market has become more inflated, relative to REIT valuations, than at any time since 2007.

Commercial property prices have risen steadily since the beginning of the recovery from the Great Financial Crisis. Continued price gains, however, at some point begin to raise warning flags.

The correlation between REITs and the broad stock market has always been relatively low because REIT returns are driven by the real estate market cycle whereas returns for most other equities are driven by the much shorter business cycle.

The senior housing business is in the midst of a building boom the likes of which we have not seen for a couple of decades. 

Whether what you’re looking to purchase is simply the steady income typical of REITs and Treasuries or the broader performance and diversification benefits of the real estate asset class, the “price” for purchasing those investment return attributes through listed equity REITs is especially favorable now.

An investment performance comparison between listed equity REITs and the rest of the U.S. stock market—segmented by sector or by style—highlights the long-term diversification benefits of the listed equity REIT market.

Data centers house the servers and network equipment that make modern communications possible, including the Internet and data transmitted by cell phones. 

Excessive debt growth is a warning sign of an overheating real estate sector. Growth of commercial mortgage debt has been modest, however, at only half the pace of the prior cycle. Banks have been the mainstay of lending, but life insurers have shown increased appetite for commercial mortgages, and net issuance of CMBS turned positive in the second quarter.