Remaining nimble, calm, and willing to change course during times of market volatility were some key pieces of advice offered by a panel of investment experts during a lunch general session at Nareit’s REITworld: 2022 Annual Conference in San Francisco.
Nareit 2023 Chair Lisa Palmer, president and CEO of Regency Centers Corp. (Nasdaq: REG), moderated the panel.
Mary Hogan Preusse, founder and principal at Sturgis Partners LLC, and a board member at several REITs, noted that “a lot has changed in the fundamentals of this business in the past two years, so don’t be afraid to change your mind.”
Bradford Stoesser, senior managing director at Wellington Management, echoed that sentiment, adding that the current uncertainty makes it important to be able to pivot as information changes. Asad Kazim, head of U.S. real estate investment banking at RBC Capital Markets, stressed the importance for REITs to be creative and open-minded in the current environment.
The panel also agreed on the importance of liquidity in today’s market. Kristin Kuney, global co-head of liquid real assets for Goldman Sachs Asset Management, said “we are leaning into those companies that have a lot of liquidity and a lot less refinancing risk over the next 12-24 months.”
Preusse also advised companies to focus on liquidity, while Stoesser added that “liquidity is precious” and provides optionality for companies when the market turns.
Meanwhile, Kazim added that equity issuance and transaction activity is likely to pick up by the second half of 2023. “REITs will lead transaction activity coming out of this," he said. Stoesser added that REITs are “pretty well-positioned” once real estate asset classes reprice.
Turning to property sectors, Kazim pointed out that the single family rental segment should continue to be attractive to the capital markets. “It’s a great option for housing…it’s going to do well,” he said. Kuney noted that the residential rental sector is benefitting from “a lot of tailwinds.” Stoesser commented that if mortgage rates stay high over the longer term, it could shift the balance to renting for some time.
Preusse, meanwhile, noted that “all REITs are cheap right now,” adding that there has been a “regional over-reaction to tech layoffs,” which has hurt West Coast-oriented companies.
As for the office sector, Kazim described it as an “opportunistic trade,” while Stoesser said that as economic reality takes hold, a shift toward more in-office work may occur.
The panel also discussed M&A activity over the next 12-24 months. Kazim said he expects activity to be driven initially by sovereign and pension capital and added that 12 months from now there will likely be fewer REITs than today. Kuney noted that “scale is going to be increasingly important” given the state of the capital markets.