Outside of the industrial sector, residential real estate in the United States “probably has the best supply-demand backdrop in global real estate right now,” says Ryan Dobratz, portfolio manager of the Third Avenue Real Estate Value Fund.
Speaking on the REIT Report, Dobratz said he sees “a significant amount of demand for single family housing, in particular within more affordable Sunbelt markets, at the same time that supply is very, very low.”
Companies active on the home building side are seeing benefits, Dobratz said, including timber REITs. Timber REITs are going to be able to generate much higher levels of cash flow and ultimately pay much higher dividends, given residential market conditions, he noted. “Timber is also a terrific place to be invested in an inflationary environment.”
Dobratz pointed to the war in Ukraine, supply chain issues, and high inflation as issues of macro concern right now. At the same time, he noted that “commercial real estate has historically been a great place to park capital and to protect it from inflation over time.”
Dobratz pointed to industrial and self-storage real estate as examples of sectors where the supply demand dynamic is “really quite favorable,” while their shorter lease terms allow for rent increases.
Dobratz also said he expects increased merger and acquisition activity over the next 12 to 24 months, with self-storage and necessity-based retail as potential areas of interest for investors.
During the interview, Dobratz also noted that:
- Given the current macro uncertainty, “it's important to focus on those well-capitalized real estate companies that can not only withstand the ups and downs in the markets, but also potentially take advantage of them.”
- “Additional regulatory disclosures will certainly cost a little bit more for some of the publicly traded companies, but frankly will bring them more in line with what we see in some of the other international markets that we deal with.”