In the latest episode of The REIT Report: NAREIT's Weekly Podcast, veteran REIT analyst Steve Manaker, formerly a managing director with Oppenheirmer & Co., reflected on the changes in the REIT industry during his career.
According to Manaker, the most significant change that he has seen during his time as a REIT analyst is a shifting focus among management teams from short-term goals to sustained growth over market cycles. The change has led to better underwriting and stronger balance sheets, he said.
Manaker also discussed the general impressions of REITs and REIT-based real estate investment among investors and the public. “Overall, I’d say the general understanding is okay right now, but there’s always room for improvement,” he commented.
According to Manaker, “disconnects” in investors’ understanding of REITs tend to show up if they are uncomfortable with either direct real estate investment or investing in stocks. As for misperceptions about REITs, Manaker noted that misguided interpretations of the relationship between REIT performance and interest rates remain in the market today. He disputed the idea of “a natural law that says REITs are going to be interest rate sensitive.” Instead, Manaker said he believes REIT returns are more correlated to the commercial real estate cycle.
Manaker was asked about the traits of the most effective REIT management teams that he encountered. “When you’re buying REITs, you’re obviously buying the assets, but I think, even more so, you’re buying the management teams,” he said. Manaker said the top management teams have the capability to adjust their portfolios over the course of market cycles.
“Over decades, things change,” he said. “What was a good piece of real estate 20 years ago might not be a good piece of real estate today.”
Manaker also cited the ability for management teams to access a broad range of information from their companies. That includes not only investing in analytics, but putting resources into data collection, according to Manaker.
In terms of the REIT industry’s future, Manaker said he expects that REITs will own a growing share of the commercial real estate market in the United States.