GICS Move Will Raise Institutional Investment in REITs, Hogan Says

Mary Hogan, managing director and co-head of Americas real estate at APG Asset Management US Inc., joined REIT.com for a video interview at REITWorld 2015: NAREIT’s Annual Convention for All Things REIT at the Wynn Las Vegas.

NAREIT named Hogan as this year’s recipient of the E. Lawrence Miller Industry Achievement Award, named in honor of past NAREIT Chair E. Lawrence Miller, the former CEO of Bradley Real Estate Trust. Hogan reflected on the main developments she has witnessed in the industry. One of the most significant, she said, has been the way REITs interact with the private real estate world. Before 2004, the private real estate world viewed REITs as an exit strategy, Hogan said.

“You would sell assets to REITs to raise money or spin out assets into a REIT at the end of a fund’s useful life,” she commented. “Ten years later, private real estate is just as likely to view REITs as a use of funds than as a source of funds.”

Currently, private real estate institutions are acquiring REITs because they are trading at a discount to net asset value (NAV), she said. Private institutions are also interested in joint ventures with REITs.

Looking ahead to the next 10 years, Hogan said the logical extension of this trend would be to see private real estate investors and private institutions using REITs as part of their real estate allocations. “Our firm has done that for a long time and I think more institutions should do so because of their diversity, liquidity and excellence of the industry,” she remarked.

Meanwhile, the elevation of real estate to an 11th headline sector of the Global Industry Classification Standard (GICS) should be “very positive” for the industry, Hogan said. She likened the move to the inclusion of REITs in the S&P Index, which opened up the industry to a broader investment base.

In the future, REITs will become a “have-to-own” sector for institutional investors, according to Hogan. She said there may be short-term volatility as the new GICs sector goes into place, “but over the long run, I think it will reduce volatility, making REIT returns look even more like real estate as REITs find more long-term natural owners.”

Hogan also noted that one of the big issues her team is grappling with is trying to work out how far the real estate cycle has advanced.

“As I look broadly across all sectors in 2015, this is really the best real estate environment I can remember fundamentally. Supply is low, demand is high and management is being very disciplined with their balance sheets,” she said.