06/07/2023 | by Nareit Staff
2023 REITweek lunch panel

Updated on June 12, 2023

Capital markets, REITs, and the future of the built environment was the theme of the lunch general session on day one of Nareit’s REITweek: 2023 Investor Conference on June 6.

Lisa Palmer, Nareit’s 2023 Chair and president and CEO of Regency Centers Corp . (Nasdaq: REG), moderated the panel discussion.

Mark Streeter, managing director at JP Morgan Chase & Co., noted that not only do REITs own top quartile assets, they also have better access to capital. A consistent theme from REITs that have that access to capital, along with low leverage, is that “we’re waiting to pounce” on opportunities. The problem, however, is “sentiment contagion,” which has painted commercial real estate with a broad brush and impacted REIT share prices in the process.

“Those (REITs) that have access to capital, they’re going to get through this, they’re going to capitalize on it…REITs are going to come out winners, we just have to get to the other side,” Streeter said.

Lisa Kaufman, head of global solutions at LaSalle Investment Management, explained that she sees REITs as fairly valued in a broad capital markets context, and added that the one caveat was that REITs look attractive relative to private real estate values.

Green Street EVP and Global Head of Advisory Dirk Aulabaugh said private real estate companies are still “trying to get the wheel moving on transactions.” As such, the private market hasn’t been able to outline where prices should be, he said. “Private real estate values have a significant way to go in certain sectors.”

Tracy Hadden Loh, fellow at The Brookings Institution, reflected on the overall mood of the market. “Markets can make vibes real. The perception can become reality. My concern is that that can become a dangerous power that can have huge knock-on effects for the economy.”

Other observations during the session included:

  • Until REITs gain a cost of capital advantage, more public-to-public merger transactions are likely, Kaufman said.
  • Office REITs are “priced to sell,” Loh said. She forecast increased return to office, and said that over time the office sector will absorb the structural decline in square foot per worker.
  • Within corporate bond markets, REITs are ranked second in terms of green bond issuance, although a pull back is starting to occur, Streeter noted. “REITs are in a great position to be able to capitalize on whatever becomes of ESG investing and trends…no one really knows yet where we’re headed.”
  • Kaufman noted that the current political climate around ESG “is not changing our (investment) stripes in any way.”
  • In 12-24 months, the equity market capitalization of the REIT index will be “materially higher” than it is today through a combination of acquisitions, new equity issuance, and appreciation, according to Kaufman.
  • Aulabaugh added that REITs will gain an attractive cost of capital in 2024 and grow as a result.