Chris Lucas, managing director and lead REIT analyst at Capital One Securities, participated in a video interview during REITwise 2022: Nareit’s Law, Accounting & Finance Conference held in Orlando, Florida on March 23-25.
Lucas said Capital One sees the current environment as one where the Federal Reserve is attempting to drive inflation down through its polices; but it is unclear whether the Fed will be able to navigate a soft landing or if rate increases this year will lead to an overshooting of tightening and create a recession.
“The key will be watching to see how the yield curve moves, and if we get to an inverted point, as they say, the clock begins,” he added.
Lucas also said that REITs are undervalued compared to where they were trading to the S&P 500 prior to the pandemic, but that Capital One feels “pretty good about REITs’ ability to outperform this year,” somewhere in the 10% range.
Turning to REIT M&A, Lucas said that non-traded REITs are raising a lot of money that they need to invest, so transactions this year are possible—“but it would probably be more focused on the public to private structure; more cash buyouts essentially than last year.”