Mueller: New Developments for Non-traded REITs

7/09/2013 | By Allen Kenney

Glenn Mueller, professor at the University of Denver, joined for a video interview in Chicago at REITWeek 2013: NAREIT’s Investor Forum.

Mueller has researched the growth in volatility in the REIT market. He offered his outlook on the prospects of volatility abating and discussed the impact of leveraged exchange-traded funds (ETFs).

“Those leveraged ETFs were one of the things that we found that created a lot of volatility back in the last recession (2008 to 2010) in REITs because they were having to re-balance their portfolios at the end of the day,” Mueller said. “That was creating extra swings in REIT stocks prices literally on a daily basis. As the economy started to improve, the fundamentals of the real estate market started to improve. Those kind of went away, and we went back to a somewhat more stable market.”

Mueller also discussed the implications of recent hints from Federal Reserve Chairman Ben Bernanke regarding interest rates.

“All of a sudden, what people have been predicting for the last couple of years with interest rates moving finally happened,” he noted. “With that, all of a sudden, any high dividend-yielding stocks, which would be utilities, REITs and other things, all of the sudden took a big correction. If people really thought about it and understood how REITs work, that shouldn’t really happen, but it does, because people say a high dividend-yielding stock is like a bond and, therefore, it’s going to go through the same correction as a bond. There’s a correlation there. The problem is that in the short term, the market is emotional, whereas, hopefully, over the long run, the market is logical. Unfortunately, I think we’re going to see some volatility here over the next few months as we sort through what is going to happen.”

Mueller also discussed some of the developments in the area of non-traded REITs.

“One of the new things happening is that many of the non-traded REITs are considering moving to a daily net asset value, similar to what institutional investors do,” he said. Now, with technology, we’re actually able to value a company’s properties on a daily basis.