Paul Curbo, portfolio manager at INVESCO Realty Advisors, joined REIT.com for a video interview at REITWorld 2014: NAREIT’s Annual Convention for All Things REIT at the Atlanta Marriott Marquis.
Curbo highlighted the biggest changes he has seen in the real estate sector during the last two decades.
“Real estate has become an accepted investment class. Twenty years ago, we often had to explain the merits of investing in REITs,” he said.
The benefits of REIT income, diversification and total returns have now become apparent, Curbo noted.
“REITs have a much better cost of capital, both for private and public debt and equity. They’ve all come much lower in terms of spreads and cap rates. That’s the positive side,” Curbo said. At the same time, capital markets are having a greater impact on real estate than they did 20 years ago, he added.
Curbo also commented on the hurdles that he believes REITs are facing in making acquisitions. Two or three years ago, REITs had a cost of capital advantage and were able to buy assets that would be accretive to earnings and net asset value, Curbo explained.
“Today, that’s more difficult for the REITs to undertake. They really can’t make large acquisitions that are going to be incremental to their earnings,” he said. As a result, Curbo said, REITs need to focus on other ways to grow “until a time that they are trading at a premium once again.”
With fewer acquisition opportunities available, REITs should focus more on their development and re-development capabilities, Curbo said.
“Fortunately there are several REITs that are very good at that. They’ve been able to manage their risk and grow asset value over time,” Curbo noted. He pointed out that acquisitions in the marketplace today are trading at a premium to the replacement cost.
“A REIT that can deliver a project at replacement cost is creating earnings growth and net asset value growth over time,” he said.