4 Quick Questions with Brian Jones

Brian Jones is SVP and co-portfolio manager with Neuberger Berman

2/22/2013 | By Carisa Chappell

Published in the January/February 2013 issue of REIT magazine.

Brian Jones received a B.A. from Harvard University. He joined Neuberger Berman in 1999 as an associate analyst. In 2003, he became an analyst covering REIT securities and was named an associate portfolio manager for separately managed accounts investing in REIT securities in 2007.

We are in a very uncertain investing market.  Do you think that investors still view commercial real estate, particularly REITs, as a stable investment class?

I think so. I think REITs have performed very well over the past two to three years, and when we consider the prospects for REITs over the next few years, we believe commercial real estate fundamentals are likely to improve and that cash flow growth within the REIT sector will remain strong.

These characteristics should continue to attract broad interest from investors. Particularly due to the fact that REITs pay higher dividends, we think investors will continue to embrace the REIT structure over the next few years.

What are some of the main challenges for REITs right now?

REITs face the same challenges that most other portions of the economy face. The economic recovery over the last few years has been more modest than most economic recoveries. Job growth has been slower than the usual economic recovery, and 2 percent GDP growth is a bit weaker than we have seen in most expansion phases. So, REITs have to contend with this slow growth environment.

Additionally, some of the REIT sectors face particular challenges. For example, office users are looking to use office space more efficiently and utilize less space per employee. The office sector has to contend with that headwind, as well as a modest growth environment.

Sector-wise, where are you most bullish?

Currently we think that the apartment REITs offer an attractive long-term return potential. There are a few demographic factors that support strong performance of the apartment rental space. The echo boom generation is in its mid-20s at this point, and that’s a prime rental age. Additionally, it’s still difficult to qualify for a mortgage to purchase a single-family home.

The last piece of the puzzle for apartment REITs, in our mind, is that they underperformed in 2012.

So, coupled with the strong underlying fundamentals and recent share price underperformance versus other sectors, apartment REITs are positioned to potentially perform well
in 2013.

What stands out to you about the resiliency of the REIT sector over the past year and what are your expectations for the coming year?

REITs have been able to generate, by our estimates, about 8 to 10 percent cash flow growth, and that’s a very attractive level of cash flow growth. So, I think investors were pleasantly surprised that the REIT universe broadly was able to deliver such robust cash flow growth
in 2012.

I expect operating fundamentals to continue to strengthen for most REITs in 2013. The current environment of limited new construction and gradually improving demand from tenants should continue. I believe this scenario could lead to another year of 8 percent to 10 percent cash flow growth for REITs on average in 2013.

I expect well-capitalized REITs to accelerate their development and acquisition activities as an improving economy creates more investment opportunities for the strongest REITs.

In my estimation, investors will continue to be attracted to both the current income generation characteristics of REITs, as well as the capital appreciation potential in the event that commercial real estate values continue to recover.


Other Features

Kenneth Campbell
Four Quick Questions With CBRE Clarion Securities Co-founder Kenneth Campbell
Kenneth Campbell had a front-row seat shortly after the birth of the REIT industry, founding the first REIT-dedicated publication, Realty Trust...
Ken Kies
Four Quick Questions With Federal Policy Group's Ken Kies
Ken Kies is the managing director of the Federal Policy Group, LLC, which advises clients on tax policy matters before Congress, the Treasury...
Sean Ruhmann
Four Quick Questions With NEPC's Sean Ruhmann
Sean Ruhmann is a partner at investment consulting firm NEPC, LLC and heads the firm’s real estate and real assets research group. Prior to joining...
Four Quick Questions With Jim Fetgatter, Chief Executive, AFIRE
Jim Fetgatter has served as chief executive of the Association of Foreign Investors in Real Estate (AFIRE) for more than 20 years. AFIRE represents...
David Kiron of MIT Sloan Management Review’s Big Ideas Initiative
Where does sustainability stand today in terms of being a strategic corporate priority? In our surveys , about 65 percent of companies report that...
Mark Decker Jr.
Four Quick Questions With Mark Decker Jr. of BMO Capital Markets
Mark Decker Jr. is a managing director with BMO Capital Markets and head of the firm’s U.S. Real Estate, Lodging & Leisure Group. Since the...
Scott Schaevitz
Scott Schaevitz, Co-Head of Americas Real Estate Investment Banking, Barclays
Scott Schaevitz is co-head of Americas real estate investment banking with Barclays. Prior to joining Barclays in 2008, he served as a Managing...
Jeremy Banoff
Jeremy I. Banoff, Senior Managing Director, FPL Associates L.P.
In general, what were the key findings of the 2014 NAREIT Compensation Survey in terms of hiring practices? This year’s survey findings included...
Peter Verwer, Chief Executive, APREA
Peter Verwer, Chief Executive, APREA
What do you consider to be your most immediate priority as head of the Asia Pacific Real Estate Association (APREA)? The Asian century is an urban...
Evan Urbania, CEO, ChatterBlast Media
We’re starting to read commentary in the media along the lines of “Twitter is dead” and other dismal prognoses for the various social media platforms...