JP Morgan Analyst Sees Adjustment Period for REITs When Rates Rise

Mark Streeter, managing director at JP Morgan Chase, joined REIT.com for a video interview at REITWorld 2014: NAREIT’s Annual Convention for All Things REIT at the Atlanta Marriott Marquis.

Streeter said he is keeping an eye on interest rates heading into 2015 when they are projected to rise. He pointed out that announcements of shifts in monetary policy have created volatility in the REIT market, most recently in 2013 when the Federal Reserve announced its plans for tapering.

“We’re not worried about interest rates, per se, in terms of what it means for the economy, because the news is actually good,” Streeter said. “If interest rates are rising, it probably means that economic activity is improving, cash flow is improving at the property level—that’s all good" for REITs.

However, he noted that a shift in rates would entail a “transition period” for the market as rates edge higher.

“I do think that odds favor higher rates, and I think you have to be a little bit cautious until the market adjusts to a higher rate environment,” Streeter said.

Streeter also addressed the different approaches to development between REIT sectors. He noted that REITs in the multifamily sector are tamping down their investment development from levels seen during the previous market cycle. On the other hand, industrial REITs have made minimizing risk a top priority.

Regarding the debt markets, Streeter said he expects to see more companies continue to pursue investment-grade credit ratings. Increasingly, he said, REITs see access to a rating and the public markets as a positive.