Green Street Analyst Says Single-Family Residential REITs Maturing

10/2/2017 | By Allen Kenney

John Pawlowski

In the latest episode of The REIT Report: NAREIT's Weekly Podcast, analyst John Pawlowski of Green Street Advisors offered his take on the maturation of the single-family residential REITs.

The size and quality of the single-family residential sector have “improved dramatically” from when it first started to emerge earlier this decade, according to Pawlowski.

Pawloski said the sector’s operating fundamentals currently compare favorably with the apartment segment of the residential market. The single-family residential REITs are enjoying the benefits of refined operating processes and doing a better job of cutting costs, according to Pawloski. He added the while the apartment market has experienced an influx of new supply in recent years, additional supply has been “fairly restrained” in the single-family segment.

Pawlowski did note that valuations for single-family residential REITs “are becoming a little pricier… But they’re still very reasonable give the favorable near-term operating outlook.” Single-family residential REITs and apartment REITs still have “fairly compelling valuations versus some property types,” he said.

Regarding recent subpoenas issued by the Securities and Exchange Commission (SEC) to companies in the single-family rental sector, Pawlowski said the securities watchdog is investigating a third-party provider of broker price opinions used for single-family rental securitizations. “We’re seeing this as more noise than any meaningful impact on REITs,” he said.

In terms of factors for potential investors in single-family residential REITs to consider, Pawlowski pointed to capital expenses. “Nobody knows how these homes are going to age over time,” he said. Investors will also have their eyes on the REITs’ capital allocation skills.

“Their capital allocation skills will need to be proven over time in good and bad times,” Pawloski said.

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