Green Street Calls Public and Private Real Estate Market Relationship “Very Consistent”

Dave Bragg, managing director of strategic research at Green Street Advisors, participated in a video interview at Nareit’s REITworld: 2018 Annual Conference in San Francisco.

Bragg said that over the long-term, the relationship between the public and private real estate markets in terms of valuation has been very consistent.

“When you look back over the past 30 years, at the core sectors, which are apartments, office, industrial, and retail, they’ve traded in line with underlying value of their assets for that period of time on average,” Bragg said.

He added that the long-term average can be misleading because “about half the time, REITs trade at greater than a 10 percent NAV premium or at a 10 percent NAV discount.” He noted that one reason the variances are so large is because public market pricing often leads private market pricing.

Bragg said that Green Street’s new FlowTracker research is focused on making fund flow data digestible and includes insight and analysis. He said Green Street segmented the research it had on owners of REITs into four groups: dedicated active, dedicated passive, generalist active, and generalist passive.

“Within those four groups, the biggest and most interesting change over the last several years has been the continued decline in market share of dedicated active investors,” Bragg said. “They’ve declined from 50 percent market share seven years ago to only about one-third today, and that has weighed on the performance of some high-quality REITs that those dedicated, active investors tend to own in overweight positions.”

Bragg said that the reclassification of real estate as its own headline sector under the Global Industry Classification Standard two years ago “really hasn’t resulted in the needle moving at all” in REIT investing.

“A key reason for that is…the REIT-dedicated constituent of investors is so large that they tend to box out the generalist active investors,” Bragg said.