J.P. Morgan: CRE Distress Should Fuel REITs' Profitability

REITs should see profitable growth from the opportunities presented by distressed selling in the near future, according to a new paper from J.P. Morgan Asset Management.
The analysis, authored by Michael Hudgins, J.P. Morgan vice president and global REIT strategist, outlined the benefits of REITs as part of an investment portfolio and noted that REITs' access to public capital provided them with a distinct advantage in the current commercial real estate market.
"REITs have proven their ability to access capital markets and, as a result, we expect REITs to be part of the solution to the looming debt maturity problem in the commercial real estate market," Hudgins said. "We expect REITs to generate future earnings growth from accretive acquisitions of distressed properties."
Hudgins maintained that REIT volatility will fall in coming years, while correlations with equity would "move closer to historical norms." He also pointed out that REITs demonstrate the performance attributes of direct property investment and potentially could be used as a hedge against a drop in real estate valuations.
"REITs are a publicly-traded, liquid investment that allows investors the opportunity to tactically re-allocate at inflection points in the real estate cycle," Hudgins said.