Morgan Stanley Analyst Says REIT Investors Warming to Single-Family REITs

Haendel St. Juste, executive director at Morgan Stanley, joined REIT.com for a video interview during REITWeek 2015: NAREIT’s Investor Forum, held in New York.

St. Juste discussed the trends he is seeing among institutional REIT investors active in the single-family rental market. While the sector is still largely dominated by hedge funds, “REIT investors are slowly warming up to it,” St. Juste said.

At this point, single-family rental companies have about two years of operating experience, have issued equity and are familiar with REIT investors, he explained. For their part, investors are becoming more familiar with management teams and the business model, according to St. Juste. However, investors are still eager for more information.

“They want to see what stabilized platforms and margins look like,” St. Juste said.

Turning to the multifamily sector, St. Juste said supply is now in the second year of growth that is above long-term averages.  At the same time, the lack of new supply from 2010 to 2013 is still acting as a net benefit, he added.

“As supply returns, the markets that it’s hitting are mainly these downtown areas where millennials want to live, work and play. It’s being absorbed relatively well,” St. Juste observed.  He added that the apartment sector is likely to generate above-average net operating income growth for the next two years as potential homeowners continue to face challenges when trying to obtain a mortgage.

St. Juste also commented on transaction activity in the mall sector. He noted that activity has been more noticeable in the upper end of the class-B mall segment, where yields have attracted private capital.

“Buyers are fine with buying the best mall in a secondary or tertiary market, or maybe the second- or third-best mall in a very strong market. For now, that’s where the sweet spot is,” St. Juste said.

Activity in the class-A mall segment has been restricted due to limited availability and the fact that assets trade at very low capitalization rates, he noted.